So, you probably heard the word “cryptocurrency” all over the internet, right? It’s kinda a big market now, and according to CMC, the whole cryptocurrency market is worth about $2.8 trillion. But, what is cryptocurrency, really? Why is everyone talking about it like it’s the next big thing in money?
In this guide, you’ll learn what makes cryptocurrency different, how it works, and how to buy and sell these crypto assets on cryptocurrency exchanges.
Key Takeaways:
- Cryptocurrency is a digital or virtual currency that uses cryptography for security, making it decentralized and difficult to counterfeit.
- There are various types of cryptocurrency, including Bitcoin, Ethereum, Dogecoin, Tether, USD Coin, and Litecoin, each with unique features and uses.
- To buy cryptocurrency, you need to set up an account on a crypto exchange, link traditional payment methods like bank or credit card, deposit funds, and choose your preferred digital asset to purchase.
What is Cryptocurrency?
Cryptocurrency is a digital money that only exists online. Unlike cash you can hold, cryptocurrency works on the internet. Bitcoin and Ethereum are two of the most famous examples, but there are over 10,000 legit cryptocurrencies out there today. What makes these digital currencies unique is that they don’t rely on financial institutions or the government.
Instead, they work on “blockchain”, a type of public database that record transaction (like a receipt) to keep track of who owns what. This way, crypto transactions can happen directly between traders without any middleman.
How does cryptocurrency work?
The core of how cryptocurrency works is through the blockchain and cryptography. Cryptography is a type of coding that secures each transaction. When you send cryptocurrency, a complex code is created to lock that transaction so only the person who has the “private key” can unlock and access the funds.
Cryptocurrency transactions are verified by “miners”, who are people (or computers) solving tough math problems to confirm that each transaction is legit. For their work, miners are rewarded with new cryptocurrency coins. This process is called “cryptocurrency mining”. It’s a bit like how people get rewarded for finding gold in real life – except these miners are using computer power to find virtual coins. You can also read our guide on how to mine Bitcoin.
Types of Cryptocurrency
Bitcoin (BTC)
Bitcoin is the first and most popular cryptocurrency. It was created in 2009 by a person or group called Satoshi Nakamoto. Bitcoin is a digital cash that you can send over the internet to anyone, anywhere in the world.
People like BTC because it’s decentralized, meaning no single company or government controls it. Instead, it uses blockchain technology. The total number of Bitcoins is limited to 21 million, so there will never be more than that.
Because of this limit, investors often think Bitcoin is like “digital gold” and believe its value might go up over time as demand increases and supply stays the same. Bitcoin transactions can be slow and expensive sometimes, but people still like it for its security and the fact that it was the first of its kind.
Utility Tokens
Utility tokens are a type of cryptocurrency used to pay for services or products on specific platforms. These tokens are not meant to be an investment like Bitcoin, but instead, they let you do certain things on the platform that created them.
For example, Ethereum is one of the most popular platforms with its own utility token called Ether (ETH). People use Ether to pay for transactions or run applications on the Ethereum network. Another example is Binance Coin (BNB), which is used to pay for transaction fees on the Binance exchange, giving users discounts.
Utility tokens usually have a purpose within their own platform or ecosystem, so they are valuable to people who want to use that platform’s services.
Governance Tokens
Governance tokens are cryptocurrencies that give people a voice in how a platform or project is run. If you own a governance token, you can vote on important decisions, like updates or changes to the project.
These tokens are usually linked to decentralized finance (DeFi) platforms, where there is no central authority making decisions. Instead, the people who own governance tokens help make those choices.
An example of a governance token is Maker (MKR), which lets holders vote on changes to the MakerDAO platform.
