The Basics about Cryptocurrency
You have read or heard about cryptocurrency in the news, from friends or even in your favourite TV shows, and it goes by different names, crypto, cryptocurrency or crypto-currency.
Some refer to crypto as the name of an actual currency like Bitcoin or Ethereum. But what is it? We know about currency, be it Dollars, Euros or Pounds, or any other local currency for that matter, and this is referred to as Fiat. When you go to a store and pay in cash or with your credit card, or even by cheque, you are paying in Fiat. Crypto, works in exactly the same way, the main difference is that all transactions are digital. You need to use a wallet to receive or send any payments to or from other people.
There are currently thousands of different cryptocurrencies on the market, and sadly some are scams, so you should be cautious. Just like fiat currency could have counterfeit bills, some cryptocurrencies are designed to scam you out of your money.
Cryptocurrency is a digital currency that uses encrypted algorithms to complete payment. Encryption technologies mean that crypto functions as a currency and a virtual accounting system. To use crypto, you need a crypto wallet, which acts as both a wallet and a bank to you. The wallet stores your assets (cryptocurrencies), yes you can hold different cryptocurrencies in the same wallet, and you can receive payments from others, and also pay out from this wallet. Each wallet has a unique address, and this can be used and freely given to people to send you crypto. Think of your wallet address as your bank account number. Research what is available in terms of wallets, and use only trusted wallets either on your desktop computer or mobile device. If you lose your wallet or access to it, you will also lose whatever you have in it.
All crypto transactions are logged and available on a public ledger which is called a blockchain.
How is crypto used? One of the most popular uses of crypto today is as a crowdfunding platform. People or companies create a new concept, new software or even a new game, and offer people a new crypto created to fund this project. People can invest in the idea if they believe it will be successful and get some of those cryptocurrencies in exchange for their investment. So if the project is successful, chances are that the value of your crypto will also increase and when you sell it, you can make a profit. Of course, the opposite is also true, if the project fails, you could lose a lot or even all of your investment.
Beyond crowdfunding though, crypto is moving into the mainstream and becoming a new means of payment. With many companies now accepting crypto as a payment method, we are seeing a new trend, much to the dislike of banks and governments, as crypto is mainly unregulated in most parts of the world, and even banned in some countries. What does this mean? Using Fiat, if you send money to someone from your bank account, that person knows who the money came from, and knowing your name and account number, with crypto, they will only see your address and nothing else, they will never know who owns that wallet.
Some consider crypto to be the currency of the future as it has no boundaries, you can pay someone in another country instantly without having to go to your bank and request a bank transfer, and the payments are generally instant, with some delays, of a few minutes, can result on busy networks, but you can increase the gas free to speed it up. Gas??? Gas is the term used for the cost of a crypto transaction, similar to bank charges, but in most cases much less.
We see crypto as becoming the next generation of payments from online payments to offline payments, and in some countries, you can even take out loans in crypto and invest or stake your crypto and get interested.
As with all financial transactions, there are always risks, so just like you won’t walk around with a bag full of money, you should protect your crypto assets (wallet) and make informed choices as to how, where and with whom you use your crypto.
Follow these tips to protect your cryptocurrencies:
- Do you research! Before investing in a cryptocurrency, be sure you understand what it is and how it works, where it can be used, and how to exchange it. Read the webpages for the currency itself so that you fully understand how it works, and read independent articles on the cryptocurrencies you are considering as well.
- Use a trustworthy wallet. If you choose to manage your cryptocurrency wallet with a local application on your computer or mobile device, then you will need to protect this wallet. You want to make sure that you use a trustworthy wallet.
- Have a backup strategy. Think about what happens if your computer or mobile device is lost or stolen or if you don't otherwise have access to it. Without a backup strategy, you will have no way of getting your cryptocurrency back, and you could lose your investment.