“A cryptocurrency (or crypto currency) is a digital asset designed to work as a medium of exchange wherein individual coin ownership records are stored in a ledger existing in a form of computerized database using strong cryptography to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership”.
We bet you were there (on Wikipedia) already for this one, and, of course, you understood about the 5% of everything written in there. But worry not! We can explain better what-the-heck is a cryptocurrency and why you should care about it. Maybe you don’t know it yet, but it’s very handy, we promise.
So, as the name suggests, cryptocurrencies are… well… currencies. Like the dollar or the euro, but with some substantial differences on the backstage. You know: where they come from, how they work, how they acquire their value. They’re not physical, either, just digital. But yeah: you can use them to buy and sell things. Like any other payment method, through a mobile or desktop app or web page (like ours!)
If they are just “currencies”, why the “crypto”, then? That comes from the cryptography. This is data encryption with math, basically: you take a message, you use math to “disguise” it in symbols, and you make sure only the recipient of that message is able to receive it through a super-secret key to decipher those symbols. That’s cryptography and the “cryptocurrencies” are built entirely with it.
But wait! They’re not difficult to use at all. We’re just talking about the backstage, how they work. You don’t need to know how it was built your laptop or your favorite app to use them, and it’s the same for cryptocurrencies. They’re digital currencies built with math instead of paper or metal, but their purpose and use aren’t that complicated.
Now you can make an interesting question here: I already have my currency, my national money, so, why should I care? What’s the point of building a new form of currency, when the “normal” currency already exists and works fine, even in the digital version?
Great question. Let’s check out some reasons.
You can use your traditional money to buy all sorts of things… almost. Isn’t always easy, if you think about it. Most of the time you won’t notice it, but you have limits and risks. Your bank account has daily or monthly limits and high fees for general use, purchases, and withdrawals. Your cash, once in your hand, could be easily lost, stolen, or contaminated (speaking of the pandemic). And your cash, inside the bank, still has the risk of disappearing because of a hacker or the entity’s bankruptcy.
Now think beyond your place: maybe you want to buy that cool mobile phone online, or you want to send money to someone you care about in another country. However, you can’t do that with no trouble with your national currency. High fees and a lot of personal documents and conditions are awaiting you in services like PayPal or SWIFT transactions.
And what if you want to give a low tip through the Internet? Can you send 0.5 USD to someone right now, online? Probably your answer is a big no because every financial service you use in the digital world has higher fees than that.
Well, guess what? You can avoid all these obstacles by using cryptocurrency. Your digital wallet will be only yours, hence, no daily limits, no high fees, no country restrictions. You don’t even need any kind of document to have a cryptocurrency wallet, it’s open for everyone with the Internet!
And, of course, there’s an awesome lot of shops, companies, and services accepting cryptocurrency as a payment. According to CoinMap, just for Bitcoin, there are at the least 19.605 venues accepting this currency in the world.
For the rest, you always can go to a nice exchange online to buy some of your favorite fiat currency with your cryptocurrency in a few minutes. Or upside down: you can buy cryptocurrency with your traditional money.
Do you have an old acquaintance telling you they’re investing in cryptocurrency with 15-200% monthly in fixed earnings, by chance? And, woah, 15-200% monthly sounds so nice, right? Well, you’ll probably believe him if you know very little thing about cryptocurrencies… but you definitely won’t if you know how this works, even at a basic level.
This is an unfortunate reason to care about cryptocurrencies, but it is what it is. Scams using the name of cryptos are very, very common. Pyramidal schemes proclaiming to have developed a new and awesome cryptocurrency that will make you rich in no time are par for the course.
Even so, please don’t be disappointed. Cryptocurrencies aren’t scams by themselves, they’re just a tool, like the traditional money. Scammers all around the world are leveraging on the popularity and novelty of these instruments to their selfish purposes… like they always do with everything.
The best for you —and your finance— is to learn about cryptocurrencies. Make sure that no one would be able to take advantage of your ignorance. And no: they can’t make you rich in no time. Sorry.
Do you know where your money comes from and why it has value? They’re just pieces of paper, after all. Well, if you’ve seen Netflix’s Money Heist you probably know already the money is printed by governments.
Those tiny pieces of paper have value because the government says they have value and the people just trust in that word. Therefore, they use the currency to buy and sell and create supply and demand. These two can change the price according to the needs and interests of a particular community…
What? It sounds like in Peter Pan, with faith, trust, and pixie dust? It’s kind of like that, really. People trust governments because, in a way, they’re trying to represent the resources and interests of a whole nation. That’s why they trust them and, therefore, that’s why the fiat money has value. Trust is the key… and it doesn’t sound a little bit alarming that? We have laws, of course, but still.
One great innovation about cryptocurrencies is that we don’t need any trust to use them. Most of the cryptocurrencies are decentralized. This means no one controls them, no one sets their value and no one can apply censorship or limits to them. These kinds of actives aren’t issued by governments, but by users from all parts of the world. The more, the best!
This process it’s called “mining”, in most cases. The internal systems of these currencies let anyone with the necessary equipment issue brand new coins and verify transactions for everyone at the same time, in exchange for energy and or/time. The “miners” receive a reward in that coin for their services.
Afterward, the coin acquires value based mainly on supply and demand. And we’re all happy, without restrictions.
Get rich with crypto…!
Hope you didn’t fall for that one. Mostly, you can’t get rich just by owning some cryptocurrencies and don’t let anyone tell you otherwise. Yes, there are out there “bitcoin millionaires”, but they bought in the early stages of the system.
Nevertheless, there’s still a… thing about cryptocurrencies and the idea of (just possibly) multiply your funds with them. That thing it’s called “trading” and isn’t something new. Have you ever seen The Wolf of Wall Street? It’s roughly like that.
You can strategically buy and sell financial instruments (stocks, bonds, securities, commodities, and, of course, cryptocurrencies) to have some earnings. That is, for example, you buy cheap and sell expensive later (when the price grows) to keep your inversion and a nice difference.
The cryptocurrencies use to be volatile: their prices vary a lot, so, they can be attractive for trading. But before you run to make a loan to become a cryptocurrency trader, let us tell you ISN’T that easy. Professional traders have a great deal of experience in financial markets and they know how to analyze complicated charts to take good (and risky) decisions. They usually have formal and long education about the economy and even about cryptocurrencies.
You can become a cryptocurrency trader, isn’t forbidden. But it won’t be a piece of cake! Now, you know what it’s actually a piece of cake? To use cryptocurrency. We can start from there.