We’ll break down the basics of crypto for you to decipher.
In recent years, you’ve probably heard a lot about cryptocurrency, or “crypto,” in the news: talks of investing in it, the volatility it tends to have, and questions about its future. But have you ever stopped to think about what it actually is? We’re here to help break down cryptocurrency for beginners – starting with these three things you need to know about it.
What is cryptocurrency?
Cryptocurrency is, at its core, digital money that people use as investments and for online purchases. The investor exchanges real currency, i.e. dollars, to buy “coins” or “tokens” of a type of cryptocurrency. These coins and tokens aren’t tangible, either; everything exists digitally. This digital money can only be used at select retailers and vendors, though that number is constantly growing.
Cryptocurrency is unique because it’s decentralized, meaning it’s not regulated by any government or institution. Instead, all users are in control together.
How does cryptocurrency work?
Every cryptocurrency transaction is verified through blockchain technology. At its core, blockchain is a database that stores sets of information in “blocks.” When filled with information, these blocks are closed and linked to the previously filled block before them, forming a chain of data that’s known as the blockchain.
Because each block includes a reference to the block that immediately precedes it, they’re difficult to hack. If you wanted to change one block in the chain, you’d need to reproduce the entire chain of blocks that followed it.
You might be wondering: how does cryptocurrency even come to exist in the first place? Most are created through a process called mining. At a high level, the mining process consists of specialized computers solving complicated math problems that verify transactions within the cryptocurrency in question. The “miners” have to be the first to arrive at the answer to the math problem in order to successfully create that unit of currency. The miners are then paid in the cryptocurrency that they choose to mine in the first place.
How do you use cryptocurrency?
You use crypto in similar ways to your usual idea of money: to buy goods and services. Acquiring your own cryptocurrency to use for purchases isn’t as complex as mining it, either. You can use a cryptocurrency exchange, like Kraken, crypto.com, or Gemini, to exchange money for cryptocurrency.
To make a payment using cryptocurrency, you’ll also need a cryptocurrency wallet. These digital wallets help you access your currency by holding private keys to the crypto you’ve purchased. The wallet itself also has a public key that’s used during transactions – essentially a means to an end that you use to send and receive payments. Most exchanges will provide a wallet for users to use to transfer funds to other exchange users or make payments using their services.
Final takeaways
At Clearview, we believe that education is the first step in bettering your overall financial well-being. We’ve broken down some of the high-level things you need to know about cryptocurrency in hopes that you’ll have a better understanding of what it is and how it’s used. As cryptocurrency continues to become more prevalent as an investment opportunity and payment option, we’ll continue keeping you informed.