Cryptocurrency has become a global phenomenon, but understanding it remains a challenge for many. According to CryptoLiteracy.org, 90% of Americans lack basic knowledge about how crypto works. This blog simplifies the essentials—what crypto is, how it works, and how to use it safely.
In the past 10 years, the word cryptocurrency has become a part of the American lexicon—Webster’s Dictionary added the word in 2018. With over 560 million crypto users worldwide, you’d be hard-pressed to find someone who did not know what crypto is. However, knowing something is not the same as understanding it, and many people still do not comprehend digital assets.
If you are one of these people, you are not alone. In CryptoLiteracy.org’s 2024 survey, 90% of Americans did not understand the fundamentals of crypto or how it works. This blog aims to change that. By the end of reading this, you may not be an expert, but you will know what crypto is, how it works, and key elements of digital assets to understand.
What is Cryptocurrency?
Cryptocurrency is a digital or virtual currency that utilizes cryptography for security. Cryptography in crypto is like a unique lock and key that secures your digital assets so only you can use it. These currencies differ from the U.S. dollar or other currencies controlled by governments because they operate on a decentralized network. No single authority, government, or person controls them.
Crypto is built on blockchain technology, allowing people to transfer digital assets peer-to-peer without needing middlemen (more on blockchain technology below). These currencies are purely digital (the term digital assets can be used interchangeably), eliminating the need for physical coins or cash. It’s money that was designed to be used via the internet. Additionally, some cryptos, like bitcoin, have a limited supply. Only 21 million bitcoins will ever be mined or made available, making this asset deflationary.
How Do Cryptocurrencies Work?
As mentioned above, crypto works via blockchain technology. Think of the blockchain as a decentralized ledger across a network of computers that records transactions. These transactions can never be reversed and are publicly viewable. Each transaction is grouped into a block, verified and added to a chain of prior transactions. Blockchain technology and crypto are innovative, as they allow for security and transparency, with all parties involved able to access the same information.
Some cryptos like bitcoin and litecoin are produced by mining that allows new coins to be created and validated. Using computers, crypto miners solve complex mathematical problems, adding a new block of transactions to the blockchain. They receive a reward in the form of crypto in return for contributing to the network. Coins that are created in this matter utilize a mechanism called proof-of-work.
Other cryptos, like ethereum, use proof-of-stake, where select validators confirm transactions based on the amount of that particular crypto they hold and are willing to stake as collateral.
What are the Different Cryptos?
The major cryptocurrencies and their different uses include:
- Bitcoin (BTC): Established in 2009, bitcoin is the first cryptocurrency many people are familiar with. It is the most popular cryptocurrency, often called “digital gold.”
- Ethereum (ETH): Ethereum is a decentralized platform that allows the creation and deployment of smart contracts and decentralized apps (DApps).
- Chainlink (LINK): A decentralized network, Chainlink connects smart contracts on blockchains to real-world data, enabling the secure and reliable use of external information.
- Dogecoin (DOGE): This crypto features the image of a Shiba Inu dog that started as a meme but gained popularity over the internet as a digital currency and enjoys a worldwide fanbase.
- Litecoin (LTC): Litecoin is inspired by bitcoin, but allows for faster transactions and lower transaction fees.
- Stellar Lumens (XLM): Stellar Lumens can be used for low-cost cross-border transactions.
- Polygon (POL): Polygon (formerly known as MATIC) is the native token of the Polygon network. It is used to pay transaction fees, stake, and participate in the network’s governance.
- U.S. Dollar Coin (USDC): USDC is a stablecoin and its value is tied to the U.S. dollar. People use stablecoins to send digital transactions and low-cost cross-border payments.
How Do I Use Crypto Safely?
Just like fiat or physical money, scams abound in crypto, where criminals attempt to steal digital assets or personal data. It’s best to use reputable platforms to purchase crypto, like Coinme. Coinme offers enhanced security, complies with local and federal regulations, and has customer service available to help. Using a trusted platform like Coinme is best, as less-reputable platforms can put you at risk for scams and compromise your digital asset holdings or personal information.
In summary, cryptocurrency represents a significant shift in how we think about money and transactions. Understanding the basics of cryptocurrency and how it works is the first step for anyone interested in entering this dynamic space. We encourage you to stay informed and join us in the next blog post, where we’ll explore how to set up your crypto wallet securely.
