What Is Cryptocurrency?

Interested in investing in crypto? You can buy cryptocurrency today on Gemini!

The world of traditional finance has been shaken as cryptocurrency continues to grow in popularity. Cryptocurrency and blockchain technology have the ability to revolutionize not only traditional currencies but supply chain, healthcare, payments and many other important aspects of life. 

In 2008, the whitepaper for Bitcoin was launched using the alias Satoshi Nakamoto. Soon after in January 2009, Bitcoin was publicly launched. The vision was a currency not controlled by a central authority but controlled and owned by the people. The movement it would ignite would be so much bigger than what could have been comprehended at the time. 

Overview of Blockchain Technology

The blockchain can be thought of as a database. Data is not stored in one place but rather is distributed across nodes all around the world. Every time a node is updated with a blockchain transaction, it must communicate with all other nodes. This action updates all other nodes with the correct transaction hash, which verifies the transaction.

A very important concept to consider when understanding blockchain is the idea of decentralization. Decentralized control of the blockchain means that each transaction must be approved by a majority of nodes, which is known as consensus. For protocols using proof of work consensus like Bitcoin, nodes are crypto miners that validate the network. In protocols using the proof of stake consensus, like Polkadot, nodes are validators that stake their cryptocurrency on the blockchain. 

Cryptocurrency Explained

Cryptocurrency is a collection of data that is designed to work as a medium of exchange, most commonly used as currency between parties. Some cryptocurrencies like Litecoin offer utility for micro-transactions and peer-to-peer payments. Other cryptos like Bitcoin offer storage value to hedge against inflation.

Cryptocurrency offers coins and tokens. Coins have their own native blockchain while tokens are built upon an existing blockchain. For example Ethereum is a coin because it has its own blockchain ecosystem, where Chainlink is a token because it is built on Ethereum. A majority of tokens are built on the Ethereum network using the ERC-20 contract standard. Another token standard, ERC-721, is built on the Ethereum network; these contracts are commonly referred to as NFTs.

Depending on the cryptocurrency, the type of governance and consensus mechanism may vary. Many projects are fully decentralized or are run by a decentralized anonymous organization (DAO). Others are technically centralized because the project owns a majority of the crypto or a majority of the operating nodes. 

Cryptocurrency Market History

Back in 2013, the market cap for all cryptocurrency was roughly $1.5 billion. Now, that may be the market cap for a single meme coin with absolutely no utility. Currently, the market cap for all of crypto is about $2.25 trillion, which is a tremendous increase over the last decade. Bitcoin had an exponential run in late 2017, which really pushed the decentralized finance (DeFi) movement as Ethereum first gained attention. After about a two-year bear market, Bitcoin broke all-time highs again, which resulted in current market conditions.

How Many Cryptocurrencies Are There?

The thing about cryptocurrency is anyone can create one. However, creation alone doesn’t necessarily give utility or value to the crypto, though it is worth mentioning to note that this is why many irrelevant cryptos are available on the market.

There are tens of thousands of cryptocurrencies, but many of them are essentially useless. When determining which cryptos will stick around, it is important to consider what they have to offer. Layer-1 cryptos provide a network for other projects to be built on, such as Ethereum, Solana and Avalanche. Layer-2 cryptos are built on existing blockchains and live on their network. Side-chains coexist parallel to other blockchains and verify transactions to scale networks.  

Is Cryptocurrency Useful?

Cryptocurrency and blockchain technology are useful and have limitless potential. Looking purely at the value of the currency itself, individuals no longer need to rely on an intermediary to move around their assets. For once, individuals are fully in control of their assets and can reallocate them whenever they please. Cryptocurrency transactions can also be settled in seconds, making it ideal for world-wide micro transactions.

Taking a step back and looking at other ways blockchain technology can be applicable, any sort of traditional contract can be made as a smart contract. Inventory, payments, employment, insurance and healthcare can all be kept track of on the blockchain and verified through multiple nodes. This type of verified ledger system can change the way we keep track of information, making it much safer and seamlessly easier for individuals. 

Where To Buy Cryptocurrency

You can purchase cryptocurrency from many crypto brokerages. Once you have signed up for an account and verified your identity, a debit card can be linked to purchase cryptocurrency. If you are looking for a wide variety of different cryptocurrencies, then eToro may be a great option to consider. If you are looking for low transaction fees, then Webull may be the best option for you. 

How To Store Crypto Safely

When thinking about how to store your cryptocurrency there are two paths to choose from: software wallets and hardware wallets. 

• A software wallet is an application on your computer or mobile device. 
• A hardware wallet is a special type of wallet that stores the user’s private keys in a secure hardware device — keeping your private key information off the internet and on an external device. 

A hardware wallet is a much safer option for individuals looking to protect their assets to the highest degree.

Best hardware wallet: Ledger

Ledger is the most recognized and most credited hardware wallet currently available. The device is primarily an offline hardware wallet. Ledger also connects to Bluetooth and USB depending on if you want to use your computer or mobile device. Ledger’s application also makes it much easier to secure, store and manage your assets.  

Cryptocurrency vs. Stocks

Many differences exist between cryptocurrency and traditional stocks, with asset type being the biggest. By purchasing a stock you are acquiring part of a company. By purchasing crypto you are purchasing an asset, which may be a governance token or a currency. 

Another difference would be how the two assets are traded. Cryptocurrency is bought on a crypto exchange and stocks are purchased through brokerages. Stock brokerages are only open during market hours, whereas crypto can be purchased at any time of the day.