Recently, cryptocurrencies have become one of the hottest topics around, with assets like Bitcoin, Dogecoin, and Ethereum in the news every day along with constant coverage of the crypto industry. But, what is cryptocurrency? How does it work? As a beginner, the industry can be difficult to understand and sometimes overwhelming.
Through our learn section, we aim to educate those interested in the industry on the capabilities of crypto, blockchain technology and the importance of crypto in a tech-focused world. Our learn section contains over 200+ informative articles and a mountain of information for you to study and learn from.
In this beginners guide, we’re going to cover the very basics of cryptocurrency and introduce the most essential aspects of crypto to help get your crypto journey started the right way. So, let’s get started! In this Article:
- What is Cryptocurrency?
- Trading and Investing Essentials
- Earning Passive Income
- Securing Your Assets
- Essential learning resources
What is Cryptocurrency?
Cryptocurrency is digital money in form of digital assets that can be traded, sent, and used by anybody and anywhere in the world. Cryptocurrencies have no physical form and are fully digital.
They differ greatly from traditional forms of currency or your favourite online payment provider. In fact, they’re way more interesting than those boring old platforms that you’re still using!
Unlike traditional forms of currency or your favourite in-game token, this ‘digital currency’ uses cryptography to secure and validate transactions on a blockchain, protect assets and make cryptocurrencies an extremely secure form of currency.
Many existing online payment gateways are owned by organizations, meaning they have to be given permission from you to transact and handle your funds. Essentially, they hold your money for you, meaning every time you want to spend your money, you need to ask them.
With cryptocurrencies, there’s no middle-man or organization in control of your funds. Only you.
This means you can send crypto to anybody, anywhere, at any time you want. You could even become your own bank. The possibilities are seemingly endless. You can even book a holiday using cryptocurrencies now.
Cryptocurrencies also have some other pretty incredible real-world uses, including:
- Send non-cash remittances to anybody anywhere in the world.
- Earn passive income on your assets
- Borrow money without a third-party
- Validate your identity or ownership over a specific asset.
When using cryptocurrency, there’s no need for log-in information or a collection of unused accounts. All you need is a few easy-to-use apps and platforms to start using cryptocurrencies. A Brief History of Cryptocurrency
Cryptocurrency is a combination of cryptography and currency.
Cryptography comes from the ancient Greek words kryptós “hidden” and graphein, “to write”. In very basic terms, it’s about sending hidden messages that can only be read by the intended recipient. The use of cryptography provides users with secure communication, protected transactions, controlled unit creation and verified transfers.
Since then, there have been thousands of others created, with more popping up every month. Although many share the same core characteristics, new transaction processes, and innovative ways to solve problems are continually being developed. If you’re interested in more in-depth knowledge into how cryptography works with crypto, this article on hashing has you covered. How are Cryptocurrencies Created?
In simple terms, cryptocurrencies are sequences of encrypted bits that are built over cryptographic functions and stored over a network. Most early cryptocurrencies such as Bitcoin and Litecoin create new tokens through mining through a process known as Proof of Work. This is a process where miners solve complex mathematical problems and are rewarded for their efforts.
Miners also verify transactions. When the assets move from one account to another, a miner will confirm the transaction, every node has to add it to their respective database, and it becomes part of the blockchain. A transaction is only considered secure once it’s been added to the blockchain.
Mining cryptocurrencies is now very popular and remains a hot topic in the crypto industry. Here’s a few more resources that can help you understand mining and proof of work a bit more.
- What is Cryptocurrency Mining?
- How Much Electricity Does Bitcoin Mining Use?
- An Introduction to Free Bitcoin Mining
Also, if/when you’re interested in starting your own mining empire, our beginners guide to CPU mining is a good place to start. ⛏️
Other cryptocurrencies are created via a process called Proof of Stake. Through this, no coins are mined; all of the coins are created and minted at the inception of a project. Validators stake their coins on a network and are rewarded with transaction fees and rewards for their participation in validating and securing a blockchain.
A blockchain is a ledger that records all of the transactions and validates the ownership of all the units. Copies of the blockchain are stored across the network in nodes. This process makes transactions extremely secure and eliminates fraud, such as double spending or spam transactions.
The most well-known Blockchain is Ethereum. On the Ethereum Blockchain, alongside the many other blockchains that know exist, users can create Smart Contracts. Smart Contracts are essentially code that automatically executes all or parts of an agreement and is stored on a blockchain-based platform.
Blockchains can be a little difficult to understand, so here’s a few more resources to help you understand them more.
- Beginners Guide to Blockchain
- How Businesses Can Use Blockchains
- How Blockchains Store Transactions
- Tokenization on a Blockchain
- The Top Blockchain Solution Companies
So, who created Bitcoin?
The most popular cryptocurrency is undoubtedly Bitcoin. It’s the number one asset by market cap and is the one crypto, alongside Dogecoin, that everybody knows and recognises.
Despite its popularity, little is known about the inventor of Bitcoin. What is known is that Bitcoin was created by an anonymous entity that works under the pseudonym of ‘Satoshi Nakamoto’. Whether Satoshi is a person, a group, a government organisation or something more extraterrestrial is unknown.
Following the publication of the infamous Bitcoin whitepaper in 2008, Bitcoin was released in 2009. Since then, it’s achieved cult status and has grown to become an integral part of the push towards greater financial freedom and privacy.
Being the most popular coin, there’s a LOT to learn about Bitcoin and its almost endless capabilities. Here are some insightful resources that can help you understand Bitcoin a bit more:
*Psst* There’s even a way to earn free Bitcoin. See how much you can earn whilst you’re reading our guide 😉
Although Bitcoin was the first crypto to exist, many other cryptocurrencies are now in circulation. These assets are usually referred to as “Altcoins”. Despite all being cryptocurrencies, they all do vastly different things.
The popular use cases for cryptos include privacy, speed, security, interoperability and greater control over funds. If you want to check out some other cryptocurrencies, here are some of our favourite resources on altcoins:The Advantages of Cryptocurrencies
- The Use-Cases of Ethereum
- Should You Buy Dogecoin?
- What is a Stablecoin?
- How Do Privacy Coins Work?
Before we move on, there may be one question running through your mind — Why should I use cryptocurrencies?
Despite all of the use-cases and hype surrounding them, there need to be certain advantages to using them over tradtional fiat currencies and legacy banking systems, right? It works, and it’s already established. It does everything you need it to, so why use something else?