Cryptocurrency Explained
by: Jude Beale
If you’ve been following the news, you might have heard about “cryptocurrency” as the new “big thing.” But you also may have no idea what this is or means.
A cryptocurrency is similar to real money like a dollar bill or a quarter, but instead, it is a digital currency or asset. This means these cryptocurrencies are not physical objects, and instead, are only traded online. There are many advantages of using cryptocurrency while making purchases online. One of these advantages is that cryptocurrency allows an exchange of value without any third parties, like a bank. These cryptocurrencies, also known as coins, can be used anywhere in the world having the same value in the United States as any other country. Before cryptocurrency existed, there was no way to transfer value online other than through an app like PayPal or Venmo. These old ways of transferring money can be extremely slow. In 2008, the first cryptocurrency, Bitcoin, was created by a man calling himself Satoshi Nakamoto. Since the creation of this currency, hundreds of more coins have been created like Bitcoin.
Cryptocurrency is created through a process called mining. Some may think this mining process is simple, but it is extremely complex and difficult. The mining of Bitcoin, for example, can be random, where sometimes the Bitcoin will mine, and other times, Bitcoin will not mine. The people who mine bitcoin, also called Bitcoin miners, receive rewards after completing “blocks” of transactions which are then added to the blockchain, or a growing list of records. Mining requires a graphics processing unit or application-specific integrated circuit in order to begin. Instead of mining, some people buy or trade cryptocurrency. These transactions are completed through on an exchange like Coinbase or BitStamp.
When cryptocurrencies are first created, they have no value. Slowly, crypto can go up or down based on a few factors. One main factor is the supply and the demand of the coin. If the supply is low and the demand is high, the crypto may go up substantially or it may “skyrocket.” Other factors are the exchanges it trades on or the cost of producing the coin through the mining process. About five years after Bitcoin was created, it cost just as much as a pair of Apple Airpods. The coin hit first hit $50,000 on February 17th, 2021, and the price is continuing to change. It’s important to remember that cryptocurrencies can change in price, unlike a dollar bill or a quarter.
Cryptocurrency is only bought on an exchange. A cryptocurrency exchange is a business that allows customers to trade cryptocurrencies. These are similar to stock exchanges and take a certain amount of the total as a fee. Different exchanges sell different cryptocurrencies and not every exchange will have the coin that you are looking to invest in. After someone buys a cryptocurrency, most people will then transfer it to their cryptocurrency wallet. These wallets are much more secure than keeping their coins on the exchange. There are many different wallets depending on the cryptocurrency in which you invest. These wallets are created to store cryptocurrency in a more secure way. Also, these are used to send crypto from one wallet to another to make a payment.
Though cryptocurrency is a new way of thinking about value, investing, and markets, one thing is the same about crypto as any other kind of money or investment. Always remember to never invest more than you can afford – or afford to lose.