What is Cryptocurrency?
Definition
A cryptocurrency (like Bitcoin) is a form of digital currency that does not rely on a bank or government. It can be used like regular money to buy goods & services or bought as an investment.
Understanding Cryptocurrency
Cryptocurrencies exist exclusively online & are completely decentralised, meaning they are not controlled by any single person, company or government.
Instead of relying on a government or a central bank, cryptocurrencies are powered by people and exist on a Blockchain network, which is a digital database of transactions that uses cryptography and a global network of computers to manage, verify and secure its transactions.
Cryptocurrency & the Blockchain
Blockchain is the game-changing technology that powers cryptocurrency. At its core, Blockchain offers us a safe & trustworthy way to do business with complete strangers, without the need for a third party like a bank or real estate agent to oversee the process.
Instead of relying on a government or a central bank, crypto & Blockchains are powered by people and are completely decentralised, meaning they are not controlled by any single entity or government.
Bitcoin: The original cryptocurrency
Bitcoin was the original cryptocurrency and the first digital payment system that harnessed the power of Blockchain technology. It allowed users to perform secure and direct peer-to-peer transactions without the need for trusted third party like a bank or payment processing service.
While Bitcoin is often described as virtual money or digital gold’ (as there are a finite amount), the term ‘Bitcoin’ actually refers to two separate things:
- The Bitcoin cryptocurrency (BTC): The actual digital coins that can be bought, sold and spent online.
- The Bitcoin Network (aka the ‘Blockchain’): The technology that powers Bitcoin, giving it its value & practical applications through a global network of computers that maintain an unalterable record of people’s balances & transactions.
What gives crypto its value?
Unlike fiat currency (USD, AUD, EUR, etc.), the value of Bitcoin & other cryptocurrencies are not usually backed by gold or any government, but rather by:
- Their scarcity
- Their use-case/utility in the world
- The market’s interest in their future potential
- The collective computing power of everyone in their Blockchain network
When thinking about what gives a currency its value, it’s worth remembering that the fiat money we use today has no intrinsic value besides the value we agree it has.
What make cryptocurrencies such lucrative (and volatile) investments are the unique utility they offer and the speculative interest of the market – whether people think a particular crypto will improve on an existing technology or solve a real problem in the world.
- Bitcoin (BTC) offered an unprecedented method of storing money and making fast & secure payments without a bank.
- Ethereum (ETH) is both a digital currency and a platform for creating a decentralised version of the internet where people can do business with each other, without middlemen.
- Reserve Rights (RSR) provides a safe & stable place for people from developing countries to store their assets in times of economic instability.
- Ripple (XRP) integrates with banks, offering a cheap & frictionless way to send money internationally.
Crypto & the future
There’s no quick fix for our financial system. But there’s a good place to start. The truth is no one knows what the future will hold, but with more governments, banks & regular people waking up to the potential of this new technology, the future of crypto is brighter than ever.
Well over $2 trillion USD (and counting) now lives in the crypto market, and the movement is rapidly gaining support from all the right people. Currently, cryptocurrency is the fastest growing financial market in the world. And it isn’t rocket science. But it may well go to the moon…
Key Takeaways
- Cryptocurrencies exist exclusively online & are completely decentralised, meaning they are not controlled by any single person, entity or government.
- There are now thousands of cryptocurrencies, each looking to improve on an existing technology or solve a problem in the world.
- Crypto offers true ownership and better control, security & privacy than fiat currencies.
- Crypto is a new asset class where value is represented by an incorruptible record of ownership stored on a highly secure Blockchain network.
- Blockchain technology can record, store and send virtually anything of value (in this case digital money), allowing for safe & secure transactions between complete strangers.
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How did Bitcoin and cryptocurrencies begin?
Bitcoin emerged onto the world stage in 2009. The housing market had just crashed and Occupy Wall Street was accusing big banks of rigging the system, charging exorbitant fees, tricking innocent people and misusing borrowers’ money.
Bitcoin, crypto and Blockchain technology burst onto the scene and offered an alternative to trusting banks with our money and a better, more efficient way to do business with each other.
It was originally based on the ideas and technology set out by the mysterious “Satoshi Nakamoto”, whose identity remains unknown (and may well be a collection of people). Over a decade after its inception, despite the many sceptics who said crypto was just a passing fad, the future of cryptocurrency is more promising than ever.
What is the difference between cryptocurrency and regular fiat currency?
Since Bitcoin’s inception, thousands of cryptocurrencies have been created, each with the goal of providing a real-world utility or solving a specific problem in the market. For instance:
- Monero aims to address privacy concers, leading the way in truly anonymous and private digital money.
- Ripple seeks to replace the SWIFT interbank payment system with an instant and more inexpensive international payment system.
- Enjin Coin leads the way in Blockchain Gaming, offering a digital currency that gamers and in-game economies can utilise.
- Ethereum provides a platform for smart contracts and dApps (decentralised applications) to be built, creating a space for incredible innovation
- Stellar also attempts more efficient international transactions, with the added goal of banking unbanked customers around the world.
How does cryptocurrency use cryptography?
Cryptography is what makes cryptocurrency so secure. It is the process of using highly sophisticated computer & mathematical technology to encrypt data so that only a person with permission can decipher & access it. Cryptocurrencies uses something called ‘public key cryptography’ in order to secure transactions, verify the transfer of assets and control the creation of additional coins.
Why are cryptocurrencies created?
Since Bitcoin’s inception, thousands of cryptocurrencies have been created, each with the goal of providing a real-world utility or solving a specific problem in the market. For instance:
- Monero aims to address privacy concerns, leading the way in truly anonymous and private digital money.
- Ripple seeks to replace the SWIFT interbank payment system with an instant and more inexpensive international payment system.
- Enjin Coin leads the way in Blockchain Gaming, offering a digital currency that gamers and in-game economies can utilise.
- Ethereum provides a platform for smart contracts and dApps (decentralised applications) to be built, creating a space for incredible innovation.
- Stellar also attempts more efficient international transactions, with the added goal of banking unbanked customers around the world.
What are the advantages of crypto over fiat currency?
Cryptocurrencies offer:
- Better security Blockchains store unalterable records (of virtually anything) that make it incredibly difficult for fraud or tampering to occur, due to the network’s decentralised nature
- A faster way to send money locally and internationally, with significantly lower transaction/conversion fees
- True ownership & decentralisation, meaning your assets are not controlled by any single person, entity or government
- Accessibility – All you need is an internet connection to use crypto (especially useful for the many who don’t have bank accounts)
- Privacy and anonymity – While the Blockchain’s records are permanent and transparent (making it harder for corporations to engage in under-the-table business), your personal identity is not revealed to anyone
How are cryptocurrencies created?
In simplified terms, cryptocurrencies are created through the following methods:
Proof of Work (PoW)
Cryptocurrencies were originally created through a Proof of Work (PoW) method called ‘mining’ which involves the use of specialised mining computers to continuously solve complex math problems in order to create crypto coins and ensure the network, the Blockchain and its transactions are kept verified and secure.
Miners are in competition to be the first to solve these math problems. They receive Bitcoin/crypto as payment for their contribution to the network’s security and legitimacy.
Proof of Stake (PoS)
An alternative to this Proof of Work method is the Proof of Stake (PoS) method which randomly chooses a winner to receive new crypto coins based on the amount they previously ‘staked’ or ‘locked up’ in the network.
Their participation in keeping the network secure by locking up or ‘staking’ their crypto assets is rewarded with new coins.
The easiest way to buy crypto is through a trusted online exchange; but beware, not all exchanges are created equal!
For the easiest way to buy and sell crypto in Australia, visit Digital Surge – the safe & simple way to trade. With extremely low fees, over 225+ coins, an emphasis on crypto education & simplicity, making the most of the crypto revolution has never been easier. Want to know more? Feel free to check out our incredibly easy-to-use platform or get in touch – we’d be more than happy to answer any questions you might have.
What does a good cryptocurrency investment look like?
It all starts with research. Any cryptocurrency with a chance of succeeding must have a real-world use case; it must either solve a real problem in the world or significantly improve on an existing technology.
In addition, a solid crypto coin will generally have a reputable team of developers, a strong community behind it ready to adopt its use case, and a solid white paper (the manifesto of the technology and purpose behind a coin),
Market cap, trade volume, recent news announcements and a coin’s past track record are also important to consider when evaluating a cryptocurrency.
If a cryptocurrency passes all these requirements with flying colours, ask yourself: ‘Is this cryptocurrency going to be useful to the world and does it solve problems that its competitors cannot?’ If the answer is a resounding ‘YES’, then you’ve got a solid investment on your hands.
For more information on how to do your own research in cryptocurrency, click here.
How do you store cryptocurrency?
Unlike a regular wallet, crypto wallets don’t store your money in the same way.
Cryptocurrencies exist entirely online on the Blockchain network (which is essentially a giant spreadsheet/database of transactions that show who owns what).
Different types of wallets
Crypto wallets come in many shapes and sizes depending on the needs of the user. However, whether it’s a hardware, software, mobile, paper or desktop wallet, the main difference is if the wallet uses cold‘ or ‘hot‘ storage.
Cold storage wallets (e.g. hardware and paper wallets) store your crypto offline and are not connected to the internet, thus reducing the risk of theft or hacking
Hot storage wallets (eg, software, online, desktop and mobile wallets) offer convenience in storing and making transactions with your crypto, but are more susceptible to theft and security breaches as they are connected to the internet
The theory behind how wallets work can be a little confusing, but don’t worry – if you’re a casual trader, being an expert on the technical aspects of crypto wallets isn’t essential
When it comes to actually using a wallet, you’ll find the software takes care of pretty much everything for you.
At Digital Surge we give all our users a free, personal wallet on sign up. Our wallets use an optimised blend of hot and cold storage (giving you a balance of security and convenience).
What are altcoins?
Altcoins are all cryptocurrencies besides Bitcoin. They offer the market new features and possibilities that Bitcoin doesn’t.
Like Bitcoin, altcoins use decentralised Blockchain technology which allow for secure peer-to-peer transactions and many other exciting possibilities beyond the realm of a simple currency or payment system.
How does the cryptocurrency market work?
Cryptocurrency markets are both extremely lucrative and volatile. The markets move according to supply and demand but are also greatly influenced by the following factors:
- Press: the way the cryptocurrency is portrayed in the media and how much coverage it is getting.
- Mainstream adoption: the extent to which the cryptocurrency fills the market's demands and how well it integrates into existing infrastructure such as e-commerce payment systems.
- Notable events: major events such as technological improvements, regulatory updates, company announcements, celebrity or institutional adoption, security breaches and economic setbacks.
- Supply: the total number of coins and the rate at which they are released.
- Market capitalisation: the total value of all the coins in existence and how users perceive the coin to be developing
Why is cryptocurrency important?
You would need a thesis to explain the fundamental shift in society that cryptocurrency & Blockchain technology will bring about (we’ve done a brief overview on this here). It is likely that it is one of the greatest technological revolutions since the internet for the following reasons:
- It completely changes the way we think about money in terms of ownership, trust, earning interest, sending money internationally and much more.
- Blockchain technology changes the way we interact as human beings. giving us a reliable way to share and track information like never before. Blockchain has already proven to have applications in online voting, supply chain management, digital IDs, food safety, corporate Social responsibility, medical record-keeping, weapons tracking, tax regulation and much more)
- Central banks, monetary authorities and third parties are undermined by cryptocurrency and we are seeing many scrambling to adapt to the rapid change that virtual currency is ushering in.
- Billions of unbanked people around the world will now have a way to easily send money overseas, while also having a place to safely store their assets and land titles, protecting them from hyperinflation and the turbulence of their precarious economies.
What is Blockchain?
Put simply, Blockchain is what powers cryptocurrency. A Blockchain is a decentralised digital record or database of transactions. It offers a brand-new way of moving money without the need for traditional banking networks, as well as a means to store data and virtually anything of value in a highly secure, transparent and unalterable way.
What are some risks of cryptocurrency?
Besides the volatility (a good or bad thing depending how you trade), there are a number of common scams that include fake exchanges and wallets pump and dump schemes, mining scams, malware, email scams, Ponzi or pyramid schemes, imposter websites and traders, fraudulent ICOs, and even fake news and bad social media updates.
While it is useful to know what dangers are out there, if you choose a trusted and secure platform and exercise a little bit of common sense, the chances of you running into security issues are very low. You can read more about these scams and how to avoid them here.
What are some of the most popular cryptocurrencies to invest in?
There are now literally thousands of cryptocurrencies on the market. While doing your own research is essential, some of the most popular cryptocurrencies are Bitcoin, Ethereum, Cardano, Polkadot, Monero, Litecoin, Bitcoin Cash and Ripple.
Where does the term ‘fiat’ currency come from?
The term ‘fiat’ actually comes from the Latin phrase meaning ‘let it be done’, which shows how value can be attached to something if enough people believe in it.
Is cryptocurrency a passing fad?
For over a decade, people have been saying that Bitcoin is nothing more than a fad. But to be honest, it kind of looks like it’s going in the opposite direction.
Major institutions, governments and some of the world’s smartest, richest people are coming to and realising that the future of money is, like everything else, digital. Something to the tune of 2 trillion dollars now lives in Crypto-land. And this is just the beginning.
As we speak our financial system is being reimagined in ways that are hard to fathom. Faith in institutions having been waning for years and the desire for a better financial system is growing. Luckily, there is a very dedicated, very smart group of people making it happen. And they’re getting support from all the right people.
Did this answer your question?
Digital Surge is the easiest way for Australians to buy, sell & store over 250+ cryptocurrencies. With extremely low fees, a uniquely user-friendly interface and a customer-support team you can rely on, getting involved in crypto has never been easier. Sign up today and enjoy safe, stress-free trading.
Crypto-curious? The time you spend here will be the best investment you ever make.
Enjoy effortless trading today
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- © 2021 Copyright Digital Surge
