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What is Cryptocurrency?
Cryptocurrency is a type of digital asset that generally functions as a digital currency. The system that makes a cryptocurrency possible is based on the technical method: cryptograph. A typical crypto is meant to be used as a currency. Although not every digital crypto asset is meant to be used as a currency like the popular crypto, Bitcoin does. For example, Ethereum is a decentralized application platform and the main use case of it is to pay transaction costs on the Ethereum network and use it as a base for other applications.
How to look at it: Cryptocurrency is a bit like online banking without a central bank. It is software-based, like an online banking platform. There is a ledger (called a blockchain), balances, and account numbers. You can access your balances by using a password and can make transactions trhough it. Just like with online banking, a typical person don’t really know how it works but it does.
What is Bitcoin?
Bitcoin is a software file stored on computers across the world that acts as a ledger of financial transactions called a blockchain. Bitcoin is the name of both this system and its unit of currency.A ledger can contain account numbers called public addresses associated with balances of Bitcoin. People can move around balances of Bitcoin if they have the passwords (or “private keys”) to those accounts using softwares/applications as a wallet. Simply saying your balance which is bitcoin itself are moving through the blockchain while creating transactions shown in your (bitcoin) wallet.
What is a Blockchain?
Technically Blockchain is first and foremost a database protocol (a set of rules) for sorting data into “blocks,” but it’s easier to think of a Blockchain as a type of database. In fact it is a spreadsheet where data is stored in blocks that are linked together in an order by the cryptographic codes called hashes. This database is meant to be generally decentralized and distributed on many computers instead of being stored in one central location or managed by one central entity. As an example: Bitcoin’s blockchain is generally used to describe both the public ledger where all transaction data is stored and the technology aka the protocol itself behind the ledger. Blockchain technology has many applications within many industries and is being credited as a prodigy for a new era of int he IT sector.
Decentralization: Instead of being hosted on one computer or one company’s computers, Bitcoin and other cryptocurrencies like Ethereum or BNB is hosted on many computers by many different entities. Meanwhile, everything is either done democratically or is controlled by algorithms, so there no need for a central host like in the bank sector or as governments work. So most blockchains like Bitcoin is both decentralized and distributed in a way.
Fiat currency vs. Cryptocurrency?
Fiat currency, like the U.S. dollar, is controlled by central banks and with it controlled by the states. It is a legal tender and you can use it as a payment for almost everything. Cryptocurrency, like Bitcoin, isn’t controlled by a central entity only by it’s users or as we call it „Holders”, also it hasn’t got its legal tender so you can’t pay your taxes with it. Otherwise, both fiat currencies and crypto currencies act as mediums of exchange and stores of value
Can I buy things with Cryptocurrency?
Cryptocurrency can be used as a payment method for any good or service that accepts cryptocurrency. The most common cryptocurrency used as payment is Bitcoin but BNB and Ethereum is becoming more and more acknowledged worldwide and as the time goes on, accepting Bitcoin and other cryptocurrencies as payment is becoming more common.
What are the benefits of using Cryptocurrency as a payment method?
There are several benefits using cryptocurrency as a payment method. One of the main benefits of cryptocurrency are the often low transaction costs and quick transactions compared to other payment systems. If the network is not crowded cryptocurrency is the quickest and cheapest way to send money around the globe, just look at XRP crypto as a good example.
With cryptocurrency it is also easy to make payments online, especially for peer-to-peer transactions. Another big benefit is that cryptocurrency doesn’t require trust, which removes potential worry for both the sending and receiving party. Meanwhile, for some people in some states, cryptocurrency can act as an alternative to any country’s currency like it is already in El Salvador.It can be a good alternative if a nation’s currency is suffering from rapid inflation.
How do I Buy / Sell Cryptocurrency?
Anyone can buy and sell cryptocurrencies like Bitcoin via online brokers or exchanges like Binance, Coinbase, Crypto.com, Kucoin and so on. Exchanges are like digital stock exchanges, but for cryptocurrencies.
How do transactions work?
Software called a cryptocurrency wallet (see below) is used in conjunction with an account number and password (technically public address and private key). The private key (known only to its owner, like a password) is used to create a signature that allows the owner to move around funds on the blockchain. Transactions are then secured on the blockchain in sequential blocks by “miners” (see the next section). Almost all cryptocurrencies work like this.
How to store cryptocurrencies?
In overly simple terms, you essentially “store” cryptocurrency in cryptocurrency wallets, you can look on it as a bank account but with truly owning your funds. For long term, you can store them in cold wallets (where you store your private keys offline and which is a physical device. Or you can also store them on any exchanges that supports crypto trading.
What is a Cryptocurrency Wallet?
A wallet can be thought of as software that allows one to store cryptocurrency and create cryptocurrency transactions. This is a simple way to think of a wallet even though cryptocurrency isn’t technically stored in a wallet (instead public addresses are associated with transactions recorded on the blockchain, and thus are associated with balances, which the wallet software can read and display for you). More technically, a wallet is software that allows you to store your private keys, view balances associated with public addresses, and create and sign outgoing transactions. With that noted, one must differentiate between wallets where you control your private keys (like the Bitcoin Core wallet), and custodial wallets where third parties host the wallet for you and are in control of the private keys (like the wallets on Coinbase or GDAX).
What is a token?
Token is a word that has some different meanings in cryptocurrency. The most used meaning is that it just describes a cryptocurrency and its unit of value. For example, one could say “I have 1000 Bitcoin tokens.” The term is also sometimes used to describe cryptocurrencies existing on other coin’s networks. It also means encrypted bits of data that doesn’t contains identifying information aka token. To be said a coin can be a token but a token can’t be a coin.
Are Bitcoin and other cryptocurrencies secure?
Well, it depends on the crypto you choose. Bitcoin is secure for two main reasons. One: it uses a lot of one-way encryption that makes everything that is encrypted next to impossible to hack (it requires too much of work). Two: it is distributed and so there is no central software to hack.
Is cryptocurrency legal?
In general, cryptocurrency is legal in every respect in the U.S. and most of the world. The only thing is that you have to pay taxes on it if you make profit from the price fluctuation, oh and don’t do anything nasty with it because anything that would be illegal otherwise is also illegal with cryptocurrency.
FOMO – Fear Of Missing Out, which is an emotional response to seeing the price move a lot up and wanting to be part of being in
FUD – is fear, uncertainty, and doubt that can affect prices of assets and what is done by many speculators by speaking ill of a crypto.
HODL – is a misspelling of hold from an old forum post, nowdays it means “hold on for dear life during big price movements
SHILL – to advertise and share the project you are part of and saying good about it in one o more forums
DEV – the creator(s) of a token or project related to crypto
PUMP and DUMP – a huge surge of price increase (often organised by some people or groups) and then a quick and drastic selling phase (and price fall) which ruins smaller projects and leaves most of the holders loosing their initial investments.