Beginner’s Guide - Reading time: about 5 minutes
This is where to get the basics. What would you like to know about cryptocurrencies? We developed this guide to help you hone your knowledge of the evolved cryptocurrency industry. The terms, concepts, and components discussed in the various articles published on this website were compiled for you to get a firm grasp of related topics that you might have come across elsewhere. Or to confirm your doubts on vague topics if you are a newbie in the space. Let’s start from the beginning: what exactly is cryptocurrency?
What is cryptocurrency?
A cryptocurrency (or crypto) is a form of digital currency based on blockchain technology. Designed to be a medium of exchange–like a government-issued currency for goods and services, cryptocurrencies operate on a distributed network of computers located in different parts of the world. The decentralized structure, coupled with their being secured by cryptography, makes verifying cryptocurrency transactions and creating new currency units to be outside the purview or control of a central authority. In a way, it fueled a peer-to-peer (P2P) system that enables anyone anywhere to send and receive payments without any intermediary.
What is the most well-known cryptocurrency?
The first cryptocurrency to be in circulation is Bitcoin. It was developed in 2009 by a programmer using the pseudonym Satoshi Nakamoto. It remains the most popular and the largest by market capitalization. On its heels is Ether, the native asset of the Ethereum blockchain which is known for its smart contract functionality. Over the years, thousands of cryptocurrencies have found their way into circulation with each exhuming varying values.
Why use cryptocurrencies?
Since 2009, Bitcoin’s market value has grown to be close to $400 billion (as of this writing) out of a total of over $1 trillion in cryptocurrency market capitalization. A digital economy has developed in parallel with the traditional economy with a burgeoning ecosystem built around it. Here are some of the factors that necessitated the embrace of these digital currencies:
Emerging as a formidable payment option
Fraught with money transfer issues like unnecessary bank charges, the value of a given fiat currency being lost in the foreign exchange process, and waiting days for a settlement, cryptocurrencies like Bitcoin have been solving and will continue to solve payment-related issues facing traditional financial institutions.
One of the top among them is the issue of trust. Nakamoto’s 2008 whitepaper, "A Peer-to-Peer Electronic Cash System," gave the first description of blockchain. It showed that once a transaction is verified by blockchain, it becomes immutable and no longer changeable. Among other things, the transparency in these transactions made cryptocurrencies establish trust.
Though the timing has been debated, Bitcoin coming on the heels of the 2008 financial crisis has been cited as a complementary factor.
- Ease of use
Cryptocurrencies bring convenience, especially with regard to transferring funds between two parties without a trusted third party like a bank. Bitcoin is already a lever for development in some developing countries where remittance as inflows from the diaspora is big. Also, with the uptake in remote jobs and the growth of the gig economy, cryptocurrencies like Bitcoin help facilitate easy payments without the stress of going through banks.
- Wealth preservation
A high inflation rate in some economies has been a factor driving many who seek a hedge for their funds' value to cryptocurrencies. Users in these countries embrace these digital currencies for their wide accessibility, security, and speed for cross-border transactions. Cryptocurrencies also help in economies where there is no compact financial system that is capable of handling complex multilayered financial issues.
That blockchain is secured by cryptography—the use of mathematical techniques based on codes that use encryption to verify transactions—helps prevent counterfeiting or double-spend. It also provides safety by helping to prevent hackers from producing fraudulent transaction records. Though there have been reported cases of hacks on blockchain-based projects, they are mainly a result of vulnerabilities in protocols.
- Financial education and freedom
Amongst other things, the advent of cryptocurrencies have been identified to have improved many users’ level of financial education. Many people’s interests have been prompted to make themselves to be strategically valuable and relevant in the global job market.
Most cryptocurrencies are yet to achieve their set objectives. This is probably because the industry as a whole is still undergoing a positioning geared towards making interest in cryptocurrencies reach its optimum. In the meantime, a vast majority of cryptocurrency holders still trade them solely for profit. This gives room to speculators to drive the prices of cryptocurrencies sideways at times.
How to buy/earn cryptocurrencies?
While there are articles that would delve deeper into this topic, here is an introduction to some of the ways to get your hands on some cryptocurrencies:
Cryptocurrencies can be mined. Depending on the design and purpose, some cryptocurrencies e.g. have to go through the process of solving a mathematical puzzle to create new units. This process is called mining and it requires the use of specialized devices to achieve this purpose.
Aside from mining, cryptocurrencies could be bought. In fact, this is the most convenient way to have a cryptocurrency as virtually all cryptocurrencies are on a cryptocurrency exchange where they can be easily traded for another or for fiat currency. Follow this link to learn more about how to buy cryptocurrencies on ProBit Global.
To buy cryptocurrency:
Choose a platform: there are two options to choose from a traditional broker or a cryptocurrency exchange. Traditional brokers are online platforms that offer cryptocurrency trading and other financial assets like stocks, bonds, and ETFs. They often have fewer crypto features. On the other hand, cryptocurrency exchanges offer different cryptocurrencies, and more features like wallet storage, interest-bearing products, options, and more, to which they charge asset-based fees.
When chosen, a user account has to be created to be a part of the community e.g. exchange, and to be exposed to their numerous products on offer as well as other relevant information.
Fund your account: to begin trading, users need to fund their accounts. With the option of a bank transfer, it is now possible for users to buy their crypto of choice with fiat currencies like the US dollar using debit or credit cards.
Place an order: to buy cryptocurrencies, users can select a "buy" option, choose an order type, enter the required amount of cryptocurrencies, and confirm the order.
Depending on its use case(s) or the products on offer by a given platform as part of its value-addition proposition, some projects allow their communities to earn their native cryptocurrency upon meeting certain conditions. It could be awarded for free (airdrops) as a reward for community members’ loyalty. Others, with the cryptocurrency adoption drive or other business objectives at the core of their actions, give out cryptocurrencies to users for completing given tasks over a given period of time.
Similar to earning, staking is a way for users to get rewarded with cryptocurrencies for holding certain cryptocurrencies. The conditions, which could include the purpose for staking e.g. to validate a project’s network, timeframe, expected reward, etc, are clearly spelled out from the get-go. In any case, locked-up cryptocurrencies in a staking event either to help run the blockchain of a cryptocurrency or for other reasons are not retrievable by the holder during the period of being incentivized. Look out for more about ProBit Global’s staking page here. We discuss more staking and some of the available staking platforms here.