What is Cryptocurrency?

Understanding what you’ll be spending your money on is paramount before jumping into the cryptocurrency marketplaces. Very simply put, it’s a token of exchange, or digital asset that is traded across the internet as currency. As I have come to find the best way to start to understand what a cryptocurrency is one should take the time to understand a simpler term, a fiat currency.

The definition of fiat currency is as follows:

Fiat money is government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it. The value of fiat money is derived from the relationship between supply and demand and the stability of the issuing government, rather than the worth of a commodity backing it as is the case for commodity money. Most modern paper currencies are fiat currencies, including the U.S. dollar, the euro, and other major global currencies.

To paraphrase or simplify the above the value of the currency is dependent on how much is available to the community. If there is a ton of currency that is being printed as in the United States year 2020, then the value of the currency is going to go down because there is nothing backing the value of the currency as the gold standard used to be a long time ago.

In order to get from the defitition above of fiat currency to cryptocurrency we simply add the fact that cryptography is added to transactions through a variety of different ways mainly by using addresses that are unique and untraceable to a specific person.

Most units of cryptocurrencies are referred to as “coins.” While coins are the whole unit of the currency the fractions of a coin is referred to as a “satoshi” most commonly, in some cases you might find that they are referred to as bits. One way that I like to think of it is like rewards points, or even coins in a video game. If you collect enough of them, eventually you’ll get a “whole star” or whatever it is themed as in the game.

Bitcoin was created as the first decentralized cryptocurrency. There were sorts of cryptos before this but they were a little different. The best place to look for this is on the wiki article. While Bitcoin has the widespread name recognition, etc there are several other kinds of coins that have been created as well for many other purposes. Some may follow different rule sets in how they are created, or be parts of different networks. Currently there are over 6000 cryptocurrencies that are in existence.

Since cryptocurrencies are a sort of fiat, and there are so many of them and each of which try to deliver a different set of benefits there are a lot of different values that they have across platforms.

As you look through the site you’ll notice the tickers and the market pricing page. Right now there is only a very small sampling of what is traded out there on the World Wide Web (is that still a thing?). That’s not because what’s on there is only what is important, it’s just because that’s all I know and it’s what I personally trade. If anyone has any suggestions we can add to them and hopefully gain some knowledge about each crytpos.

For anyone looking to start learning and using more cryptocurrencies, they can be used in a variety of ways. Such as

  • A currency to exchange for goods with the privacy of not having your name tied to a transaction.
  • A digital asset in which you invest in kind of like a normal currency or stock within a market place where you buy and sell or hold long or short term.

Please keep in mind when investing in cryptos that they are very volatile, they can fluctuate greatly on a day to day basis, and like investing in the stock market make sure that you only put in as much as you can safely lose in the case something catastrophic were to happen. Ultimately I see any investment as a risk, or gamble. Things may go well, things may go horribly. Hope for the best plan for the worst.

Featured Image – Photo by Dmitry Demidko on Unsplash

Please Keep in Mind

All knowledgebase articles are written from the perspective of the site owner and is by no means completely accurate and the exact word to go by. It’s simply opinions expressed as their way to work in the field of cryptocurrency. Please read each article carefully and form your own opinions and use the discord channel to add suggestions for the articles.