What is cryptocurrency?
A cryptocurrency (crypto) is a digital asset that can be used as a means of payment without intermediaries on the financial market. Cryptocurrencies are not regulated by any central authority, but rely on a decentralized system called blockchain. Blockchain is a digital ledger that stores all transactions with crypto in a secure way. Cryptocurrencies are created through a process called mining, where computing power is used to solve mathematical problems.
How many cryptocurrencies are there?
There are thousands of different cryptocurrencies, they are traded for profit, and their value is determined by supply and demand. Some of the most popular ones are:
Bitcoin is the original and most widely used cryptocurrency. It was created in 2009 by an anonymous person or group using the pseudonym Satoshi Nakamoto. It is a decentralized currency that has no central authority or intermediary. Bitcoin uses a proof-of-work system to verify transactions and prevent double-spending. BTC has a limited supply of 21 million coins that can be mined using specialized computers. Bitcoin is known for its high volatility and innovation.
Ethereum is both a cryptocurrency and a blockchain platform that supports smart contracts, decentralized applications (DApps), and other protocols. It was launched in 2015 by Vitalik Buterin and other co-founders. Ethereum uses a proof-of-work system that is transitioning to a proof-of-stake system to secure its network and validate transactions. ETH has an unlimited supply of coins that can be mined or staked. Ethereum is known for its programmability and diversity.
Tether is a stablecoin, meaning it is pegged to a fiat currency, such as the U.S. dollar or the euro. It was launched in 2014 by Tether Limited, a company that claims to hold reserves of the corresponding fiat currency for every USDT issued. Tether uses a proof-of-reserve system to maintain its value and trustworthiness. USDT has a variable supply of coins that can be minted or burned by the issuer. Tether is known for its stability and liquidity.
Binance Coin (BNB)
Binance Coin (BNB) is a utility token that can be used to trade and pay fees on Binance, one of the largest and most popular cryptocurrency exchanges in the world. It was launched in 2017 by Binance as an initial coin offering (ICO) to fund its development and expansion. Binance uses a proof-of-authority system to secure its network and validate transactions. BNB has a capped supply of 200 million coins that can be burned periodically by the issuer. Binance Coin is known for its utility and growth.
Cardano is a cryptocurrency and a blockchain platform that aims to create a more scalable, secure, and sustainable ecosystem for smart contracts, DApps, and other protocols. It was launched in 2017 by Charles Hoskinson, one of the co-founders of Ethereum. Cortano uses a proof-of-stake system called Ouroboros to secure its network and validate transactions. ADA has a maximum supply of 45 billion coins that can be minted or staked. Cardano is known for its scientific approach and innovation.
How do cryptocurrencies work?
Cryptocurrencies work by using a technique called blockchain. Blockchain is a digital ledger that stores all transactions with crypto in a secure and transparent way. Each transaction consists of a block of data that contains information about sender, receiver, amount and time. Each block is linked to the previous block by a unique code called hash. In this way, a chain of blocks is formed that cannot be changed or manipulated.
To verify and approve transactions on the blockchain, something called consensus mechanism is needed. It is a way for all participants in the network to agree on which blocks are valid and which are not. There are different types of consensus mechanisms, but the most well-known is proof-of-work (PoW). PoW means that participants in the network have to solve complex mathematical problems to create new blocks and get rewards in the form of crypto. This is called mining.
Cryptocurrencies are decentralized, which means that they are not controlled or regulated by any central authority. Instead, it is the users themselves who have control over their money and transactions. To send and receive crypto, one needs a wallet, which is a digital application or device that holds one’s private keys. The private keys are necessary to sign and approve transactions. Without them, one cannot use one’s cryptocurrencies.
Crypto has many advantages, such as speed, low costs, anonymity and innovation. But they also have many risks, such as volatility, security, regulation and environmental impact. Therefore, one should be careful and informed when buying and using cryptocurrencies.
Is crypto the same thing as NFTs?
Cryptocurrencies are not the same thing as NFTs (Non-fungible tokens), which are digital assets that can represent artworks, music or game items. NFTs also use blockchain technology to guarantee authenticity.
How to buy cryptocurrencies
To buy cryptocurrencies, you need to choose a platform that allows you to purchase them with fiat currency (such as U.S. dollars) or another cryptocurrency. There are two main types of platforms: cryptocurrency exchanges and cryptocurrency brokers.
To buy crypto, you need to create an account on your chosen platform, verify your identity, fund your account with fiat currency or another cryptocurrency, and make your purchase. You may also want to buy a cryptocurrency wallet, which is a device or software that stores your private keys and allows you to access your funds.
Buying cryptocurrencies can be risky, so it’s important to do your research before investing and not to invest more than you can afford to lose.
Cryptocurrency exchanges are platforms where buyers and sellers meet to trade cryptocurrencies. They often have low fees, but they can be complex and intimidating for beginners.
There is no definitive answer to which crypto exchanges are the most trusted, as different platforms may have different features, fees, security measures, and customer reviews. However, here are some of the cryptocurrency exchanges that are often mentioned as trustworthy:
Based in San Francisco, Coinbase was founded in 2012 and has since become a leader in the industry. It is one of the most popular and user-friendly platforms for buying and selling cryptocurrencies, especially for U.S. customers. Coinbase supports over 50 cryptocurrencies and has a high level of security and compliance. It also offers advanced trading tools, a crypto wallet, and rewards programs.
Binance is another highly trusted crypto exchange that has gained a lot of popularity in recent years. It is based in Malta and has a global presence, offering over 200 cryptocurrencies and hundreds of trading pairs. Binance has low fees, high liquidity, and a variety of services, such as futures, margin, staking, lending, and more. It also has its own native token, BNB, which can be used to get discounts on trading fees.
Kraken is a leading crypto exchange that has been around since 2011. It is based in the U.S. and offers over 50 cryptocurrencies and multiple fiat currencies, such as USD, EUR, GBP, and AUD. Kraken has a reputation for being secure, reliable, and transparent. It also provides advanced trading features, such as margin, futures, options, and OTC trading.
Gemini is a U.S.-based crypto exchange that was founded by the Winklevoss twins in 2014. It is a regulated and licensed platform that adheres to high standards of security and compliance. Gemini supports over 40 cryptocurrencies and several fiat currencies. It also offers a crypto wallet, a custody service, an interest-earning program, and a credit card with crypto rewards.
Cryptocurrency brokers are platforms that simplify the process of buying cryptocurrencies by interacting with exchanges for you. They often have higher fees or other drawbacks, such as selling your data or not executing your trade at the best price.
Cryptocurrency brokers are platforms that simplify the process of buying crypto by interacting with exchanges for you. They often have higher fees or other drawbacks, such as selling your data or not executing your trade at the best price. However, they may also offer some advantages, such as ease of use, convenience, or additional services.
Based on some of the search results, here are some of the cryptocurrency brokers that are often mentioned as trustworthy:
Coinbase is one of the most popular and user-friendly platforms for buying and selling crypto, especially for U.S. customers. It supports over 50 cryptocurrencies and has a high level of security and compliance. It also offers advanced trading tools, a crypto wallet, and rewards programs.
eToro is a global social trading platform that allows you to buy and sell over 20 cryptocurrencies, as well as stocks, ETFs, commodities, and more. It has low fees, a user-friendly interface, and a copy-trading feature that lets you mimic the trades of other users.
Uphold is a multi-asset platform that lets you buy and sell over 200 cryptocurrencies, as well as fiat currencies, precious metals, stocks, and more. It has low fees, a simple interface, and a debit card that lets you spend your crypto anywhere.
Robinhood is a commission-free trading app that lets you buy and sell seven cryptocurrencies, as well as stocks, ETFs, options, and more. It has a sleek interface, a fractional share feature, and a cash management account that earns interest.
SoFi is a financial services platform that lets you buy and sell 20 cryptocurrencies, as well as stocks, ETFs, loans, insurance, and more. It has low fees, a user-friendly app, and a variety of educational resources and tools.
How to safely store crypto
Storing your cryptocurrencies safely is very important, as they can be vulnerable to hacking, theft, or loss if you don’t take proper precautions. There are different types of wallets that you can use to store your crypto, but they can be broadly classified into two categories: hot wallets and cold wallets.
Hot wallets are wallets that are connected to the internet and can be accessed at any time. They are convenient for frequent trading and spending, but they are also more exposed to cyberattacks and human errors. Some examples of hot wallets are online cloud wallets, software wallets, mobile wallets, and exchange wallets.
Cold wallets are wallets that are not connected to the internet and allow you to store your cryptocurrencies offline. They are more secure and reliable, but they are also less convenient and accessible. Some examples of cold wallets are hardware wallets, paper wallets, USB drives, and physical coins.
Tips on how to keep your cryptocurrencies secure:
- To keep your cryptocurrencies safe, you should keep most of them in a cold wallet, which is the safest option.
- For smaller amounts of cryptocurrencies that you need to trade or spend frequently, you can use a hot wallet.
- Write down the recovery phrases for your crypto wallets on a piece of paper and keep it somewhere secure. Do not let anyone else see them and DON’T store them on the internet.
- Choose a wallet provider that has a proven reputation for security and customer service.
- Add more layers of security to your wallet, such as encryption, password protection, two-factor authentication, and multi-signature schemes.
- Keep your wallet software up to date and follow the best practices for online security.
- Avoid clicking on links or downloading attachments that look suspicious or may contain malware or phishing attempts.
- Transfer your cryptocurrencies from exchanges to your wallet as soon as possible, as exchanges are often hacked and may not have enough insurance or protection for your funds.
- Before investing in any cryptocurrency, do your own research and understand the risks involved.
What you can buy with cryptocurrencies
Cryptocurrency can be used to buy a variety of goods and services online or offline. Depending on the type and availability of cryptocurrency, you can buy different things with it. Here are some examples of what you can buy with crypto:
- Coffee: You can buy a cup of coffee with Bitcoin at some coffee shops, such as Starbucks, or online retailers, such as Overstock.com.
- Education: You can pay for your tuition fees or online courses with cryptocurrency at some universities or educational platforms, such as the University of Nicosia or Udemy.
- Cars and yachts: You can buy luxury vehicles or boats with crypto at some dealerships or online marketplaces, such as Bitcar or Bitpremier.
- Real estate: You can buy property with cryptocurrency at some real estate agencies or platforms, such as Propy or CryptoCribs.
- Shopping: You can buy clothes, accessories, electronics, books, and more with crypto at some online stores or platforms, such as Amazon, Shopify, Purse.io, or OpenBazaar.
- Travel: You can book flights, hotels, tours, and more with crypto at some travel agencies or platforms, such as Expedia, CheapAir, Travala, or Bitcoin.Travel.
- Food: You can order pizza, burgers, sushi, and more with cryptocurrency at some restaurants or platforms, such as Pizza Hut, Burger King, Sushi.com, or PizzaForCoins.
- Entertainment: You can buy movie tickets, music, games, and more with crypto at some theaters or platforms, such as AMC Theatres, Microsoft Store, Steam, or Bitrefill.
- Tickets: You can buy tickets for concerts, movies, sports, and more with cryptocurrency at some theaters or platforms, such as AMC Theatres, Microsoft Store, Steam, or Bitrefill.
- Insurance: You can buy insurance policies with cryptocurrency at some insurance companies or platforms, such as AXA Switzerland, Etherisc, or Nexus Mutual.
- Luxury watches: You can buy luxury watches with cryptocurrency at some watchmakers or platforms, such as Hublot, Breitling, or BitDials.
- Art: You can buy art with cryptocurrency at some galleries or platforms, such as Sotheby’s, Christie’s, or OpenSea.
- Charity: You can donate to various causes and organizations with cryptocurrency at some platforms, such as GiveCrypto.org, The Giving Block, BitGive Foundation, or UNICEF CryptoFund.
Benefits and drawbacks of using crypto
Cryptocurrency is a form of digital money that can be used to buy a variety of goods and services online or offline. Depending on the type and availability of cryptocurrency, you can buy different things with it. However, using crypto also has some benefits and drawbacks that you should be aware of. Here are some of them:
Benefits of using cryptocurrency
Cheaper and faster money transfers
Cryptocurrency can enable cheaper and faster money transfers than traditional methods, such as bank wires or remittances. This is because cryptocurrency transactions do not require intermediaries or third parties, such as banks or payment processors, that may charge fees or cause delays. Crypto transactions are also global and borderless, meaning they can be sent and received anywhere in the world with internet access.
Crypto is based on blockchain technology, which is a decentralized system that does not rely on a central authority or intermediary to function. This means that cryptocurrency users have more control and autonomy over their own money and data, and are less vulnerable to censorship, manipulation, or interference by governments or corporations. Decentralized systems also have more resilience and security, as they do not collapse at a single point of failure.
Innovation and diversity
Crypto is a dynamic and evolving field that offers many opportunities for innovation and diversity. There are thousands of cryptocurrencies available, each with its own features, functions, and use cases. Some cryptocurrencies aim to improve on existing ones, while others offer new solutions or services.
Cryptocurrency users can also benefit from the various applications and platforms that are built on top of blockchain technology, such as smart contracts, decentralized applications (DApps), decentralized finance (DeFi), non-fungible tokens (NFTs), and more.
Drawbacks of using cryptocurrency
Cryptocurrency prices are highly volatile and unpredictable, meaning they can fluctuate significantly in a short period of time. This can make cryptocurrency risky and challenging to use as a medium of exchange or a store of value. Crypto prices are influenced by various factors, such as supply and demand, market sentiment, news events, regulations, hacks, scams, and more.
High energy consumption
Cryptocurrency mining is the process of creating new coins and verifying transactions on a blockchain network. It requires a lot of computing power and electricity, which can have a negative impact on the environment and contribute to climate change.
Some cryptocurrencies use more energy-efficient consensus mechanisms than mining, such as proof-of-stake (PoS) or proof-of-authority (PoA), but they may have other trade-offs or limitations.
Use in criminal activities
Cryptocurrency can be used for various purposes, both good and bad. Unfortunately, some people use crypto for illegal or unethical activities, such as money laundering, tax evasion, fraud, ransomware, terrorism financing, drug trafficking, and more. This can damage the reputation and legitimacy of cryptocurrency and attract unwanted attention from law enforcement agencies and regulators. While crypto transactions are not completely anonymous or untraceable, they can offer more privacy and anonymity than traditional methods.
Cryptocurrency fraud and scam
Cryptocurrency fraud and cryptocurrency scams are illegal or unethical activities that involve the use of crypto to deceive or harm others. They can take various forms and target different victims, such as investors, traders, consumers, or businesses. Here are some examples of fraud and cryptocurrency scam:
Bitcoin investment schemes
These are scams that promise high returns or guaranteed profits from investing in bitcoin or other cryptocurrencies. They often use fake testimonials, celebrity endorsements, or professional-looking websites to lure unsuspecting investors. They may also ask for upfront fees or personal information to access the investment opportunity. However, once they receive the money or data, they disappear without delivering any returns or services.
Rug pull scams
These scams involve creating a new project, coin, token, or non-fungible token (NFT) and hyping it up to attract investors. They may use social media, influencers, or paid promotions to create a false sense of demand and legitimacy. They may also prevent investors from selling their coins or tokens after buying them. However, once they raise enough funds, they withdraw all the liquidity from the market and leave investors with worthless assets.
These are scams that involve sending fake emails, texts, calls, or messages that appear to come from legitimate sources, such as cryptocurrency exchanges, wallets, platforms, or authorities. The scammers may use logos, names, or addresses that look similar to the real ones. They may also create fake websites that mimic the real ones. In addition to that, they may ask for personal information, passwords, recovery phrases, or payment details to access or verify an account, claim a reward, resolve an issue, or avoid a penalty. However, once they obtain the information or money, they use it to steal cryptocurrency or commit identity theft.
These scams involve offering free cryptocurrency or other prizes to people who participate in a contest, survey, quiz, or event. They may use social media, influencers, celebrities, or live streams to promote the giveaway and create a sense of urgency and legitimacy. The scammers may ask for a small amount of cryptocurrency as an entry fee or verification fee to claim the prize. However, once they receive the payment, they do not deliver any prize or reward.
These are scams that involve installing malicious software on a device that can monitor, control, or damage it. The scammers may use fake links, attachments, downloads, updates, or apps to infect the device. They may also use social engineering techniques to trick users into opening or installing the malware. The malware can then steal cryptocurrency by accessing wallets, keys, passwords, recovery phrases, or accounts. It can also hijack devices to mine cryptocurrency without the user’s consent or knowledge.
This is a scam that involves intercepting a communication between two parties and altering it for malicious purposes. For example, a scammer may hack into a public Wi-Fi network and redirect users to a fake website that looks like a legitimate one. The scammers can then trick users into entering their login credentials or payment details and use them to access their accounts or steal their funds.
Social media cryptocurrency giveaway scams
These are scams that involve impersonating celebrities or influencers on social media and offering free cryptocurrency to their followers. They may use fake accounts, hacked accounts, or verified accounts with slight name changes to appear authentic. The scammers may ask followers to send a small amount of cryptocurrency to a wallet address and promise to send back a larger amount. However, once they receive the payment, they do not send anything back.
These are scams that involve promising high returns or guaranteed profits from investing in a new project, coin, token, or platform. They may use fake testimonials, reviews, or ratings to create a false sense of trust and popularity. The scammers may also pay early investors with funds from new investors to maintain the illusion of success. However, once they run out of new investors or funds, they collapse and disappear with the money.
Fake cryptocurrency exchanges
These are scams that involve creating fake websites or apps that look like legitimate cryptocurrency exchanges. They may offer low fees, high liquidity, or attractive incentives to lure users. The scammers may ask users to deposit funds into their accounts and promise to execute their trades. However, once they receive the funds, they do not execute any trades and prevent users from withdrawing their money.
Source: What To Know About Cryptocurrency and Scams | Consumer Advice (ftc.gov)