Cryptocurrency: Everything You Need To Know

Learn all you need to know to make smart decisions when it comes to buying cyptocurrency, whether that's Bitcoin, Ethereum, Ripple, Binance Coin or any others. This article takes you through what cryptocurrency is, how cyptocurrencies work, how the blockchain functions and how you can store your cryptocurrency so you can buy with peace of mind.

In an ever more digitalized world, it’s no surprise that money is going digital too. Cryptocurrencies are gaining traction. Explore how they are transforming traditional financial systems, international transactions, and even investment methods. From the technological foundations to their future potential, learn all about cryptocurrency in this article.

image of bitcon in front of computer with trend data

What is Cryptocurrency?

It all began in 2009 when an entity known as Satoshi Nakamoto created Bitcoin. Bitcoin marked the start of a new era in the financial world: the era of cryptocurrencies.

Cryptocurrency meaning: Digital currencies that utilize cryptography to secure transactions and control the creation of new units. Unlike traditional currencies issued by central banks, cryptocurrencies are decentralized and governed by a system called a “blockchain,” a distributed and immutable public ledger that records all transactions. This technology ensures the integrity and traceability of transactions while reducing the need for trusted intermediaries.

Today, there are nearly 24,000 different cryptocurrencies, including some like Ethereum and Ripple, for example, that offer advanced features such as smart contracts and decentralized funding platforms.

These technological advancements open the door to a multitude of innovative applications that go far beyond simple value transfer. These innovations are completely redefining entire sectors, from finance to logistics, and even art and entertainment. A new realm of economic opportunities is here.

What Are Cryptocurrencies Used For?

Cryptocurrency serves a range of uses as vast as it is revolutionary:

  • Global currency for digital transactions: Thanks to their decentralized nature, cryptocurrencies offer unprecedented freedom from traditional financial institutions. They are especially well-suited for quick, low-cost, cross-border transactions, offering a robust alternative in countries with unstable economies.
  • Means of payment: Cryptocurrencies are increasingly being accepted as a form of payment by merchants, spanning both tangible goods and digital services. They’re used for online purchases, electricity bills, donations to charitable organizations, and much more.
  • Investment: Cryptocurrency can also serve as a long-term investment, with Bitcoin now being regarded by many as a “store of value,” a form of “digital gold.”
  • Trading: More and more traders are capitalizing on cryptocurrency price fluctuations to generate income.

How Does Cryptocurrency Work?

To understand how cryptocurrency works, we need to look at the technology behind it: blockchain.

blockchain is, as the name suggest, a chain of blocks. Each block contains a list of transactions and is cryptographically linked to the previous block, creating an unbreakable and immutable chain of transactions. When a transaction is made, it’s added to a pending block.

Cryptomining is where powerful computers on the crypto network are used to solve a complex mathematical problem associated with a block. The first miner to solve this problem gains the right to add the block to the blockchain and is rewarded with a certain amount of the relevant cryptocurrency. This process is called cryptomining, or cyptocurrency mining. 

Transaction security is ensured through cryptography. Each transaction is digitally signed by the sender to guarantee its authenticity. The blockchain’s design also prevents any subsequent modification of the transaction to ensure its integrity.

Cryptocurrencies like Bitcoin operate on a decentralized network. This means that no institution or government controls the currency. Instead, control is distributed among all participants in the network.

It’s worth noting that each cryptocurrency has its own characteristics and specifics. Ethereum, for example, introduces the concept of “smart contracts,” programs that automatically execute when certain conditions are met. This feature has paved the way for numerous applications, from decentralized finance (DeFi) to Non-Fungible Tokens (NFTs).

What Factors Determine the Value of Cryptocurrency?

The value of cryptocurrency isn’t set by a central institution, but rather determined by market forces – the supply and demand across various crypto exchange platforms. But there’s more to it than that, as a variety of factors can also influence its value.

Perception

One of the most significant factors is the perceived value by users. Cryptocurrencies hold value because people believe they do. If users lose confidence in a currency due to negative regulations, security breaches, or a tarnished reputation, demand for that currency drops, which makes for a decrease in value.

Technology

The underlying technology of a cryptocurrency, notably the blockchain and its features, can also impact its value. Bitcoin, with its maximum supply limit of 21 million tokens, is often seen as a store of value similar to gold. On the other hand, Ethereum, with its capacity to execute smart contracts, carries intrinsic value linked to its potential applications across various domains.

Regulation

Government regulations can influence cryptocurrency adoption and, consequently, demand. Let’s take a simple example: a major country like China bans the use of cryptocurrencies. The result? The demand of decreases, and the value drops.

Accessibility and Adoption

The easier a cryptocurrency is to get hold of and use, the more likely it is to be embraced by the public. This encompasses ease of purchase and sale, compatibility with crypto wallets, acceptance by merchants and service providers, and more.

Speculation

Many investors are drawn by the potential for high returns due to volatile crypto prices, and it’s often their speculative behavior that causes significant fluctuations.

Institutional Adoption

Adoption by banks and investment funds, in particular, lends legitimacy to cryptocurrency and facilitates its acceptance by a broader audience. So too does adoption by major brands. Take a concrete example: in 2021 when Tesla announced that it had invested $1.5 billion in Bitcoin and would start accepting Bitcoin as payment for its vehicles, the price of Bitcoin soared.

Evolving Markets

An general increase in interest in cryptocurrency will increase the value of numerous currencies. However, a negative event, like a major security breach, can affect confidence across the entire market.

Macroeconomics

Interest rates, inflation rates, overall economic health – these factors can all influence cryptocurrency value. For instance, during an economic crisis, investors often seek safe havens for their assets, and cryptocurrency, particularly Bitcoin, becomes one of the alternative safe-haven assets.

Competition

If a new cryptocurrency enters the market and offers more advanced technology or fulfils an unsatisfied need, there’s a strong chance it will attract investors who were previously invested in other assets.

What are the Main Cryptocurrencies?

Bitcoin

Bitcoin, represented by the acronym BTC, is the first and most well-known cryptocurrency. Launched in 2009 by an individual or group using the pseudonym Satoshi Nakamoto, Bitcoin is often referred to as digital gold: there will only ever be 21 million Bitcoins in circulation. Bitcoin operates as a decentralized peer-to-peer payment system that functions without a central authority. Since its inception, the value of Bitcoin has experienced both dramatic highs and colossal lows. However, despite its volatility, it remains the top cryptocurrency in terms of value and market capitalization.

Two gold bitcoins

Ethereum

Ethereum, or ETH, stands as the second-largest cryptocurrency by market capitalization. Introduced in 2015, Ethereum is a decentralized platform enabling the development of decentralized applications (dApps) and smart contracts. These smart contracts execute automatically upon meeting specific conditions, eliminating the need for intermediaries. Ethereum has been a pioneer in numerous innovations, including decentralized finance (DeFi) and non-fungible tokens (NFTs).

Ethereum coins

Ripple

Ripple serves as both a digital fund transfer platform and a cryptocurrency, XRP. Launched in 2012, it aims to facilitate secure, instantaneous, and low-cost cross-border fund transfers. XRP acts as a transfer token within the Ripple network, acting as a “bridge” between different currencies, enabling seamless exchange. It’s a cryptocurrency widely adopted by financial institutions and payment services.

ripple coins on a white background

Binance Coin

Binance Coin, or BNB, is the native cryptocurrency of the Binance cryptocurrency exchange platform. Introduced in 2017, BNB has multiple use cases within the Binance ecosystem, including paying transaction fees and participating in token sales on the Launchpad platform. BNB also features a “burning” mechanism, where Binance uses a portion of its profits to buy back and destroy BNB tokens, reducing supply to enhance token value.

Each of these cryptocurrencies possesses its own strengths, weaknesses, and unique use cases. While Bitcoin retains its undisputed leadership in terms of value and recognition, Ethereum brings new capabilities to the blockchain world through smart contracts. Ripple focuses on the cross-border payment market, and Binance Coin remains a pivotal player in the ecosystem of the world’s largest cryptocurrency exchange platform.

Binance

  • Low fees
  • One of the largest crypto exchanges
  • Fee discount for using native BNB

How to Buy Cryptocurrency?

When it comes to buying cryptocurrency, for beginners it might initially seem daunting. However, the process is becoming increasingly straightforward and accessible. There are now several ways to buy cryptocurrency:

Centralized Exchanges (CEX)

Centralized exchanges (CEX) are the most widely used platforms globally for buying cryptocurrencies. These platforms, like Binance, Coinbase, and Kraken, for instance, are managed by a centralized entity whose goal is to facilitate transactions between buyers and sellers. To buy cryptocurrencies on a CEX, you’ll need to create an account, verify your identity (known as KYC – “Know Your Customer”), and then deposit funds, either via bank transfer or credit/debit card. Once funds are deposited, you can purchase cryptocurrencies on the platform at prices determined by market supply and demand.

Decentralized Exchanges (DEX)

Decentralized exchanges, such as Uniswap or SushiSwap, enable the decentralized exchange of cryptocurrencies, meaning without intermediaries. DEXs use smart contracts to automate and secure transactions. To use a DEX, you’ll need a crypto wallet (like MetaMask, for example), and you should already possess cryptocurrency to exchange. DEXs offer greater privacy and reduce dependence on a central entity. However, they are more challenging for beginners to use and come with liquidity and security risks.

Brokers

Brokers, like eToro and Bitpanda, for example, are companies that directly sell cryptocurrencies to buyers. Instead of providing a platform for buyers and sellers to meet, brokers sell cryptocurrencies they already own. While the main advantage is the streamlined buying process, it’s still essential to exercise caution since using a broker generally involves purchasing cryptocurrencies at slightly higher prices.

In any case, before buying cryptocurrency through any of these platforms, we advise you to conduct your research and fully understand the risks associated with this investment. Cryptocurrency prices are notably volatile, and each purchasing method has its own pros and cons in terms of security, privacy, ease of use, and cost.

Where to Store Your Crypto?

Once you’ve purchased your first cryptocurrency, you’ll need to store them securely. To do this, you’ll require a cryptocurrency wallet, also known as a “wallet.” This wallet can come in the form of an application or a physical device. It holds private keys, which are essentially secret codes that grant you access to your cryptocurrencies.

There are several types of cryptocurrency wallets to choose from based on your needs and priorities. Some emphasize ease of access, while others focus on enhanced security measures.

Online Wallets (Hot Wallets)

These are accessible through a web browser or an application. Highly convenient, they can, however, be vulnerable to online attacks.

Online wallets, also known as “hot wallets,” are constantly connected to the internet, making access and transactions straightforward. They are ideal for storing small amounts of cryptocurrencies that you regularly use, like for daily transactions or trading, for example.

However, be careful, as this accessibility is also their Achilles’ heel in terms of security. Since they are online, they are more susceptible to hacking, phishing, and server attacks. Providers of online wallets do, of course, implement various security measures, such as two-factor authentication (2FA), strong passwords, encryption, and sometimes even insurance against theft. Nonetheless, you’ll need to remain vigilant to avoid any loss of funds.

→ Hot wallet: A preferred choice for quick and easy access to your cryptocurrencies.

Hardware Wallets (Cold Wallets)

Also known as cold wallets, hardware wallets are devices designed to store your private keys offline. This is the safest option for long-term cryptocurrency storage, especially if you have a significant amount. They represent a form of “cold storage,” where your cryptocurrencies are shielded from online threats. Wallets like Ledger X and S or Trezor resemble USB drives and allow you to securely store your cryptocurrency. Private keys remain on the device and are never exposed to your computer or the internet. Transactions are validated on the device and only then transmitted to the blockchain.

Another lesser-known form of cold wallet is the paper wallet. These are printed documents containing your public and private keys. Although highly secure from a cybersecurity standpoint, they are vulnerable to physical risks such as water, fire, or simply the loss of the document.

→ Cold wallet: A preferred choice for securing your funds.

How to Buy Cryptocurrency with Peace of Mind

Investing in cryptocurrency in 2023, let’s face it, has something captivating and intoxicating about it.

But beware, it can also be notably intricate and risky for newcomers. That’s why we recommend taking an informed and cautious approach when buying cryptocurrencies. Here are some tips to help you buy crypto with confidence.

Master the Basics of Crypto

Before you dive in, it’s crucial to understand the fundamental principles of cryptocurrencies and the blockchain technology they rely on. You should be able to answer the simple question: “What is cryptocurrency?”. Cryptocurrencies are digital forms of currency that use cryptography to secure transactions and control the creation of new units. They operate on blockchain, a decentralized ledger technology that transparently and immutably records all transactions. Familiarize yourself with inherent crypto concepts like crypto wallets, exchanges, private and public keys, and blockchain transactions.

On top of this, remember to always keep in mind that cryptocurrencies are famously volatile and can experience extreme price fluctuations in a very short time. Grasping these risks and being prepared for the possibility of losing all or part of your investment should be an integral part of your undertaking.

Research the Cryptocurrencies You Want to Buy

Once you’ve got a solid grasp of the basics, it’s time to conduct thorough research on the specific cryptocurrencies you’re considering buying. Each one has its own technology, use cases, community, and development team. Some, like Bitcoin, are primarily used as a store of value, while others, like Ethereum, are designed to facilitate smart contracts and decentralized application development. Before purchasing a cryptocurrency, don’t hesitate to read its whitepaper, track its historical performance over days/weeks/months/years, verify the credibility of the development team, and understand its value proposition. In parallel, we strongly advise keeping up with news and developments in the cryptocurrency ecosystem, as they can significantly impact the price and popularity of particular tokens.

Plan How You’ll Secure Your Crypto Before Buying

Another aspect often overlooked by beginners is security. Since cryptocurrencies are digital assets, they can be susceptible to various forms of cybercrime like hacking, phishing, etc. That’s why we recommend considering token security even before you buy them.

As mentioned in the previous paragraph, several solutions are available to you: online wallets (hot wallets) like Trust Wallet or MetaMask Wallet, or offline wallets (cold wallets) like Ledger or Trezor, each with its own pros and cons in terms of security and convenience. Hot wallets are more practical for regular transactions, while cold wallets are safer for long-term storage. In addition, make sure to use robust security measures like two-factor authentication and strong passwords, and never share your private keys with anyone. Also, remember to regularly back up your wallet.

Cryptocurrency Basics - FAQs

What is cryptocurrency?

Cryptocurrency is a form of digital currency that uses cryptography to secure transactions and control the creation of new units. It operates on a technology called blockchain.

What are the risks associated with investing in cryptocurrencies?

Volatility in prices, security issues, and uncertain regulations are among the major risks associated with cryptocurrencies. Therefore, it’s important to exercise caution and avoid investing more than you’re willing to lose.

How much should I invest in cryptocurrencies?

There’s no “ideal” amount to invest. It depends on your financial goals, your financial situation, and your risk tolerance.

Can I convert cryptocurrency to fiat currency?

Yes, you can sell your cryptocurrencies and withdraw the funds in fiat currency. Most exchange platforms offer this functionality, but the methods and fees vary. Profits withdrawn should be reported for taxation.

What is Decentralized Finance (DeFi)?

Decentralized Finance is a movement aiming to create an open and permissionless financial system, powered by blockchain technologies and smart contracts. It provides a variety of financial services like lending, insurance, and trading without relying on traditional financial intermediaries.

What is a Non-Fungible Token (NFT)?

This is a type of crypto token representing a unique item. This item cannot be exchanged on a one-to-one basis with another token. NFTs have been used to tokenize a range of assets, including art, real estate, and virtual goods.