Cryptocurrency is confusing and anyone that tells you differently is a liar. If you want to learn more about crypto, we’re here to make sure you know the ropes without the side of jargon and pretension that no one asked for. We’ve rounded up some of the most common crypto questions along with some bite-sized answers for you. We promise, crypto isn’t just interesting, it’s actually really cool. Once you know your way around, we think you might just agree. So, dip your toes in and let us know what you think. If you come up with any other questions along the way, don’t hesitate that ask; that’s why we’re here.
What is Cryptocurrency?
Cryptocurrency, or crypto for short, is a form of currency that is completely digital and doesn’t rely on any central authority like a bank or government. It is hosted on a platform called a blockchain that is completely public so that every transaction is transparent and very difficult to tamper with. There are many different types of cryptocurrencies and these tokens have no physical form. They each have an actual dollar value attached so you can buy, sell, and transact with them.
What is the purpose of cryptocurrency?
Cryptocurrency’s whole schtick is decentralization, meaning that it isn’t governed by a central authority like a bank. It puts the power back in the hands of the people because it is regulated by a peer-to-peer network: blockchain. It was originally created in the midst of the 2008 global financial crisis so people could control their money themselves without having to rely on anyone else. This form of currency also has very low or no transactional costs, unlike the fees that we all pay for carrying out various banking transactions.
Who controls cryptocurrency?
One of the most common crypto questions is who controls it. You guessed it: no one. Well actually, no one and everyone at the same time. Crypto transactions are reviewed and legitimized by the vast and decentralized network of computers that make up a blockchain. These computing systems solve equations to confirm transactions and add them to the blockchain. Each confirmed transaction forms a block and these blocks are strung together by chains, forming an ever-growing, public ledger for anyone to see. Before we dive any deeper, let’s talk about blockchain.
What is blockchain?
A blockchain is simply a way of recording information that makes it virtually impossible to change or hack. It’s a digital record of transactions that is distributed across the entire network. All cryptocurrency is housed on a blockchain. For example, Bitcoin, Ethereum, and Cardano have their own blockchains and each has different processes for approving transactions. Blockchains are also where new cryptocurrency is made. When transactions are validated, new tokens are awarded to the computer that does the footwork, therefore more tokens are distributed into the network. A blockchain is built up of countless computer systems all around the world that are incentivized to review transactions with rewards in the form of tokens.
Is cryptocurrency legal?
This is both a common question and a tricky one to answer because cryptocurrency hovers outside of the law. It’s not centrally governed, therefore it is not regulated by laws in the ways that we are used to. That said, there are some countries that have outlawed cryptocurrency. But, if you are transacting in a country that has not banned crypto and you are behaving lawfully, it’s legal.
Is it “real money”?
Cryptocurrency is often accused of being “monopoly money” by folks on the outside looking in. The thing is, haven’t we just assigned value to everything in our lives that we consider to have financial worth? Such is the same for cryptocurrency. When you look at a dollar bill, you might not think it holds worth in and of itself, but it does hold worth based on how we use and understand it. Cryptocurrency is bought with traditional currency and, in turn, has value in traditional currency when it’s sold. It’s digital money and, just like every other currency, its value fluctuates. But, in the simplest answer, it does have real financial value and, in turn, can be considered real money.
What are the different types of cryptocurrency?
There are tons of different cryptocurrencies such as Bitcoin, Ethereum, Litecoin, Cardano, Dogecoin, Stellar, and the list goes on. This is sort of like all of the different currencies that exist in the world, they each have different values and functions. But, rather than talking about the different cryptos themselves, let’s talk about the different kinds of cryptocurrencies.
There are coins, altcoins, and tokens. A coin is any crypto that uses its own blockchain, like Bitcoin, Ethereum, and Cardano, for example. They live on their own blockchain which they are native. There are also altcoins, which are any coin other than Bitcoin. Finally, there are tokens that can be bought and sold just like coins, however, they aren’t native to their own blockchain. This means they use another blockchain, an example being Tether which exists on the Ethereum blockchain.
What are the top cryptocurrencies?
The top cryptocurrencies may change, but there are some key players that you’ll always see at the top of the list. Being a “top” cryptocurrency means that they have the highest market capitalization or the highest total value of all of the coins in circulation. At present, some of the hardest hitters are Bitcoin, Ethereum, Tether, Binance Coin, U.S. Dollar Coin, Solana, XRP, Cardano, Terra, and Avalanche.
How do I buy cryptocurrency?
The first thing you need to do is select a crypto broker or crypto exchange. These are websites like Coinbase, Gemini, or Binance. Once you’ve picked your platform, all you have to do is make an account and either deposit cash or link your bank account. Next, you pick your cryptocurrency and place your order. Once the crypto lands in your account and the transaction is complete, you can choose how you’d like to store your currency. Many people leave their coins on the exchange platform, others opt to get a crypto wallet.
What is a crypto wallet?
A crypto wallet is a digital wallet that allows you to safely store your currency. Crypto wallets are apps that are high-security and help you keep your funds in one place. Just like a normal wallet, you don’t need one, but it sure does make it easier to keep everything together and accounted for.
Are cryptocurrencies taxed?
Apologies, but we’re going to say it one more time for the people in the back: cryptocurrency is decentralized. If you have digital assets in a crypto wallet or on an exchange platform, they won’t be taxed. But, if you sell your digital currency for traditional currency, this is where taxes come in.
This is the first of many crypto Q&As to answer the most common crypto questions and we can’t wait to share more with you. The most common crypto questions are common for a reason: people are asking! we can’t answer your questions if you don’t ask them. So, message us on Instagram or shoot us an email with all of your burning questions, and we’ll be sure they get answered.