Explaining Crypto To Complete Beginners

Have you ever heard of cryptocurrency? Maybe you have, but don’t really know where to start. In case you don’t know what it is, or are just interested in what it all means, we have a guide for you!

The cryptocurrency market is booming, but many people are still confused about how it works and what it means for the future of money. There are plenty of resources out there for those who want to learn more about cryptocurrencies, but perhaps one of the best places to start is by explaining what they are and how they work. Cryptocurrency for beginners? Continue reading for more.

What is Cryptocurrency?

Bitcoin, Ethereum, and other cryptocurrencies are revolutionising how we invest, bank, and use money. Cryptocurrencies use a technology called public-private key cryptography to transfer coin ownership on a secure and distributed ledger. A private key is an ultra secure password that never needs to be shared with anyone, with which you can send value on the network. An associated public key can be freely and safely shared with others to receive value on the network. From the public key, it is impossible for anyone to guess your private key.

At its core, cryptocurrency is typically decentralised digital money designed to be used over the internet. Bitcoin, which launched in 2008, was the first cryptocurrency, and it remains by far the biggest, most influential, and best-known.

What is the difference between cryptocurrency and fiat?

Cryptocurrencies and traditional currencies (fiat) share some traits — like how you can use them to buy things or how you can transfer them electronically — but they’re also different in interesting ways. One of the most notable differences between the two is that cryptocurrencies are not backed by any government or central bank, while fiat money is backed by a government or central bank. That means cryptocurrencies are decentralized, while fiat money isn’t.

Since there’s no central authority controlling the supply of cryptocurrency, individual users control it directly through their computers. This is sometimes referred to as “mining” or “staking,” but these terms don’t describe how new units are created; they refer only to how existing units are divided up among people who have them in a system called proof-of-work.

Crypto is also decentralized and borderless. This means that no single country can control its use and no central authority can prevent its transfer from one party to another. It’s why so many people love it — they see it as an alternative to the current financial system and the control of large banks and governments over their money. The fact that cryptocurrencies aren’t tied to any particular country or government makes them attractive for those seeking anonymity when engaging in transactions online, although some countries have begun regulating digital currencies as if they were traditional currencies.

Crypto makes it possible to transfer value online without the need for a middleman like a bank or payment processor, allowing value to transfer globally, near-instantly, 24/7, for low fees. Crypto is now accepted as payment by some of the largest companies in the world including Microsoft, Overstock and Shopify. It’s even being used on the streets of New York City! The benefits of crypto go far beyond just digital currency. It’s also a technology that can be used to protect our privacy rights and keep our data safe. Cryptocurrencies are usually not issued or controlled by any government or other central authority. They’re managed by peer-to-peer networks of computers running free, open-source software. Generally, anyone who wants to participate is able to.

If a bank or government isn’t involved, how is crypto secure?

It’s secure because all transactions are vetted by a technology called a blockchain. A blockchain is a public ledger of all transactions that have ever been executed. It’s an immutable ledger of all transactions that have ever taken place. It’s not stored in any one location, but rather on thousands of computers across the world. These computers then compete to verify transactions and add them to the ledger (the blockchain), which is why it has become known as a distributed ledger. The result: no central authority controls the data, which makes for a more transparent system than traditional banks or other financial institutions can provide. How does this work? Each transaction that takes place using cryptocurrency has a unique identifier called a hash. This hash contains information about the sender and receiver of the currency, as well as some other metadata information like its timestamp. When someone wants to make a new transaction using cryptocurrency, they take their current copy of the blockchain and create a new transaction with their unique hash inside it. They then send this new transaction out into the ether where it competes with other transactions for inclusion in the next block on the chain (hence “blockchain”). When miners mine new blocks they also validate all previous transactions already included in those blocks so they can be added to their own copies of the blockchain ledger.

A cryptocurrency blockchain is similar to a bank’s balance sheet or ledger. Each currency has its own blockchain, which is an ongoing, constantly re-verified record of every single transaction ever made using that currency. Unlike a bank’s ledger, a crypto blockchain is distributed across participants of the digital currency’s entire network. No company, country, or third party is in control of it; and anyone can participate. Blockchain is a breakthrough technology only recently made possible through decades of computer science and mathematical innovations. One use of blockchain if not the most prevalent is cryptocurrencies. Crypto allows individuals to take complete control over their assets. The main features and attributes of it are: privacy, security, portability, transparency, irreversibility and safety.

Cryptocurrencies are the first alternative to the traditional banking system, and have powerful advantages over previous payment methods and traditional classes of assets. Think of them as Money 2.0. – a new kind of cash that is native to the internet, which gives it the potential to be the fastest, easiest, cheapest, safest, and most universal way to exchange value that the world has ever seen. Digital currencies provide equality of opportunity and create unique opportunities for expanding people’s economic freedom around the world – regardless of where they were born or where they live. As long as you have a smartphone or another internet-connected device, you have the same crypto access as everyone else.

What can you use crypto for?

Crypto has been around for quite some time. For the most part, it has been used as an investment tool or currency by many traders and investors in the digital market. However, recently we are seeing a shift in the way people are using cryptocurrencies, with more and more people using it for everyday use. Here is a list of things you can use crypto for:

• shopping
• donating to causes
• gift it
• tipping people
• travelling or even for buying property and assets in a virtual world

Let’s pause, take it back and actually understand how does crypto mining work?

Mining is the process of creating and securing the blockchain. Those people doing this are referred to as “miners”. They operate computer hardware and software which receives, verifies and transmits valid transactions throughout the network. They also perform a “proof of work” function to build the blockchain. This means their computers are continually trying to solve complex puzzles and the first miner to solve each new puzzle provides proof and as a reward creates the next block in the chain, thereby securing the blockchain and settling transactions. Miners are incentivised to do this as the winning miner collects transaction fees and is permitted to create a certain amount of new cryptocurrency. Not all blockchains use the same method to secure the network and some, like bitcoin, require far more sophistication to participate compared to others.

Final Thoughts

The most successful cryptocurrencies are those that have been designed with a specific purpose in mind. For example, cryptocurrency can be used as an alternative to fiat money or credit cards as a way to exchange value. Cryptocurrencies aren’t necessarily something that everyone is going to embrace—you don’t have to either. But now might be a good time to start planning for their potential impact on your finances, society, your industry or even your role.

This space moves at the speed of lightning! Stay updated on the latest in the space by subscribing to the Web3 Wrap-Up newsletter for a weekly summary on what’s happening in Crypto & Web3. ✨