Cryptocurrency has taken the financial space by a storm. It’s almost impossible to go for a week without hearing of a new cryptocurrency being launched or another one soaring to record highs, sending savvy investors rushing in. For most people, though, the concept remains foggy if not downright complicated. In this article, we break down everything about cryptocurrency, including: is it the same thing as digital currency?
Cryptocurrency is an internet-based medium of exchange. “Crypto” refers to the fact that the currency uses cryptography to secure and verify transactions and regulate the release of new units. One of the most defining features of cryptocurrency is that it relies solely on the internet: it has no issuing or regulating authority, nor is it bound by geographical restrictions.
Cryptocurrency or Digital Currency?
It’s easy to conflate these two terms, especially since financial analysts and the media often use them interchangeably. So what’s the difference after all? The key thing to grasp is that all cryptocurrencies are digital currencies, but not all digital currencies are cryptocurrencies.
Digital currency is the term for any form of money that’s available only in digital form. This money is not tangible like, say, coins. Digital money can be transferred from one person to another, be traded for another currency, and can be used to transact, just like physical money. It can also be sent to and received in any place in the world.
The defining difference between cryptocurrency and digital currency lies in one word: crypto. Cryptocurrencies are a form of digital currency that is based on cryptography – a technique that combines elements of art, science, and mathematics to convert readable text into unintelligible text so that information is secured from unauthorized parties.
If you’re looking to invest in cryptocurrency and are still confused about what it is or you just want to sound smart when you’re talking about digital currencies, then it helps to know exactly the difference between the two.
Differences between Cryptos and digital currencies
☑️Structure: Digital currencies are centralized, meaning their transactions are regulated by a particular entity, like a bank. Cryptocurrencies are decentralized, meaning regulation within the network is done by the community in the network.
☑️Transparency: Digital currency transactions are confidential. Cryptocurrency transactions are transparent and are in public record, i.e., anyone can see the transactions of any user since transactions are recorded on an open chain – the blockchain.
☑️Potential for Manipulation: Digital currencies have a centralized system that can exert authority over transactions – like canceling or freezing them at the request of a legitimate party. Cryptocurrencies are not controlled by any authority, and cannot be manipulated.
☑️Legal Status: Most countries have established a legal framework for digital currencies. For cryptocurrencies, the same cannot be said, at least currently.
Common Cryptocurrency Lingo
You don’t have to be the originator of Bitcoin to understand some of the most common “cryptocurrency speech” around. Here is a definition of some of the most used words to ease you into the world of cryptocurrency.
☑️Blockchain: Every new record in a cryptocurrency network is recorded as a “block.” It’s so-called because it’s resistant to alteration. Blocks are linked together by cryptography – hence “blockchain.”
☑️Mining: This is the process of verifying transactions before they are recorded on the blockchain network. Mining involves solving complex computational puzzles and decrypting codes.
☑️HODL: “Hold On For Dear Life,” meaning holding onto your cryptocurrency coins despite unfavorable market conditions.
☑️Altcoins: This is the name given to all other cryptocurrencies after Bitcoin – the first and most successful cryptocurrency to date.
☑️CAP: This is a shorthand of market capitalization, which means the total number of coins in supply multiplied by the going price.
☑️Peer to Peer: In a peer to peer model, two or more computers interact directly with each other without the intervention or presence of an intermediary.
The Rise and Future of Cryptocurrency
Only years ago, cryptocurrency was an academic concept explored without much success. That was until 2009 when the first cryptocurrency was launched and took the world by storm. Since then, thousands of cryptocurrencies have been launched with varying levels of success. Today, the cryptocurrency model is being explored by institutions: including governments and financial institutions to make processes more efficient and secure
If the success of Bitcoin, the most popular cryptocurrency, is anything to go by, then the future of cryptocurrencies is bright. Other cryptocurrencies such as Ripple, Ether, Litecoin, and Cardano have commanded a significant share of attention and investment. Initial Coin Offerings (ICOs), akin to the shares of a company, continue to generate excitement and interest in the crypto market.
How Can You Buy and Use Cryptocurrency?
The most important thing is to know how you can benefit from cryptocurrency and how to stay safe while doing so. Whenever you purchase a cryptocurrency, you become the owner of a private key to the wallet address of the coin(s).
With this key, you can access and spend your bitcoin to pay for things or transfer to anyone. Where you place your key is crucial because it means the difference between holding your valuable coins and losing them. So, how do you safeguard your coins? Innovative individuals and companies have come up with crypto wallets that, apart from protecting them from theft, enable you to store, send and monitor their balance. Here are the various types of wallets available today.
Desktop wallets: This type of wallet allows you to send and receive cryptocurrency addresses on your computer. An example is Cryptonator, which enables you to store several cryptocurrencies in one account.
Online wallets: These are web services that allow you to store your cryptocurrencies online. You can access them anywhere, anytime.
Mobile wallets: These are apps that allow you to encrypt your cryptocurrencies and pay for services right from your phone.
Paper wallets: These are pieces of paper with QR codes on them, one being the public address at which you receive your cryptocurrency, the other being your private address where you send them.
Hardware wallets: These are USB devices that store bitcoin electronically and keeps your private keys.
By now, you should have a fair understanding of this exciting thing called cryptocurrency. Though a bit daunting at first, it’s an exciting and revolutionary technology with something to discover every day. Remember, like with everything, the more you learn about it, the more you get comfortable and possibly invest in its ever-growing potential.