What is Cryptocurrency?

Read this beginner’s guide to learn more about what cryptocurrency is, how the system behind it works, and the baseline information on investing in the most well-known crypto coins.

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Definition: Cryptography is the art of writing or solving codes. It’s a secure communication technique that stores and transmits data in a particular form so that only those for whom it is intended can read and process it.

High-level breakdown

Using blockchain technology, cryptocurrencies allow for direct peer-to-peer digital payments without needing a third party like a bank or a payment platform. Most cryptocurrencies are decentralised and not controlled, issued, or distributed by a government or other central governing authority; They are theoretically immune to government interference or manipulation.

Users can benefit from lower transaction fees, faster transaction times, increased mobility of financial assets across countries or regions, and more. Although Bitcoin, Ethereum, Dogecoin, and other cryptocurrencies have recently been gaining popularity online, their prices have been highly volatile in the past and are still considered a highly speculative choice of investment by some professionals.

People in most countries are able to easily purchase cryptocurrency by signing up with a trusted crypto exchange in their respectable region.

Who created it?

Cryptocurrency coins are packs of data that are encoded using a digital communication technique known as cryptography – the art of writing or solving codes. It is a method of storing and transmitting data in a particular form so that only those for whom it is intended can read and process it.

Using this method, Bitcoin (BTC) was launched as the first-ever cryptocurrency and has since been the most popular by market capitalisation. It was launched in 2008 as “an electronic payment system based on cryptographic proof instead of trust” by the pseudonymous developer(s) Satoshi Nakamoto.

For all the details, you can read the full whitepaper online at bitcoin.org or continue reading!

How does it work?

Instead of trusting a third party (like a bank or payment platform) to verify a digital transaction between two parties, cryptocurrency relies on a peer-to-peer network of computers known as a blockchain.

Every single transaction ever made and verified using that network is tracked and recorded on a digital ledger, and is distributed across participants of the digital currency’s entire blockchain network; providing proof that a transaction is in fact completed. This removes the need for trust between two parties (which is typically offered to both by a third party) to ensure that a transaction is completed without dispute.

To learn more about blockchain technology, and the consensus mechanisms like proof-of-work and proof-of-stake that are used to verify transactions, you can read our guide here.

Should you invest?

Doing your own research and seeking financial advice from a professional is recommended across most crypto platforms, same as Coinfall. Understanding the benefits and risks can help you make more informed decisions on investments!

Here are some things to consider:

  • You can easily transfer cryptocurrency to anyone else at any given time, unlike stocks or bonds
  • Crypto transactions are much faster than fiat transactions
  • The number of people who hold Bitcoin and other digital currencies is growing – with millions already investing around the world
  • The value is determined by supply and demand, rather than by a centralised government and monetary policies
  • Centralised intermediaries like banks and monetary institutions aren’t necessary to enforce trust and solve disputed transactions between the two parties
  • The signup process is quick and only takes a few minutes
  • Purchasing is easy and secure using a debit card or bank account
  • Buy as little (or as much) as you want with reasonably low minimum purchase limits
  • You can buy fractional coins. For example, you can buy $50 worth of Bitcoin or Ethereum
  • Cryptography eliminates the possibility of a single point of failure – for example, a large monetary institution setting off a cascade of crises around the world
  • Investments can generate profits – with crypto markets skyrocketing and reaching $2 trillion at one point
  • Cryptocurrency can be used to transfer the store of value across borders/countries at much lower fees. For example, fiat currency can be converted to Bitcoin then moved across borders – then withdrawn using the fiat currency of the destination
  • Though transactions are made anonymously, they are also pseudonymous – they leave a digital trail that agencies (usually affiliated with the government) can track down. Technologies could later be developed to identify wallets to a person.
  • Cryptocurrency has a reputation for being a popular tool for criminal activities and illicit purchases.
  • They are used by hackers for ransomware activities – with an increasing number of incidents each year.
  • Although cryptocurrencies are decentralised in theory with an even distribution of wealth between the many participants on a blockchain, it is not the case just yet – ownership can be highly concentrated with some investors regarded as ‘crypto whales’ for owning a large portion of the market supply of a coin.
  • Cryptocurrencies that use proof-of-work uses up considerable amounts of energy resources. Mining can too be highly concentrated with industrialised size mining operations for some.
  • The blockchains are highly secure; however, the crypto exchanges and wallet provider platforms can be hacked. Millions of hard-earned money have previously been stolen from users – resulting in devastating losses.
  • Crypto prices are highly volatile – most have experienced rapid surges and crashes in value.

Cryptocurrency prices have so far been highly volatile and are regarded as speculative investments by some. You should always do your own research and seek advice from a professional before making any investments.

Where can you buy it?

To buy cryptocurrency (such as Bitcoin, Ethereum, Dogecoin and others) using Fiat currency (such as The United States Dollar or The Euro), you’ll first need to pick an online exchange or broker that deals in crypto. Both are essentially online platforms that connect new users (or connects for the user) with the blockchain.

Some popular crypto exchanges include…

  • Crypto.com
    A beginner-friendly crypto exchange powered by Cronos (CRO) chain. Connects with the Crypto.com DeFi wallet and the Crypto.com NFT marketplace.
  • Coinbase
    A beginner-friendly crypto exchange powered by USDC chain. Connects with the Coinbase DeFi wallet and the Coinbase NFT marketplace.
  • Binance
    A crypto exchange for both beginners and advanced users alike powered by Binance (BNB) chain. Cannot connect with a DeFi wallet, but can connect to binance NFT marketplace.
  • FTX
    A beginner-friendly crypto exchange powered by FTX chain. Connects with the Exodus DeFi wallet and the FTX NFT marketplace.
  • Huobi
    A crypto exchange for both beginners and advanced users alike powered by Huobi (HT) chain. Connects with the iToken DeFi wallet and the Huobi NFT marketplace.

You can easily learn and compare the fees, new user bonuses, and other important information about popular crypto exchanges with Coinfall. For more information, please read our full guide on “How to Purchase Cryptocurrency” for beginners.

How do you store it?

When you purchase crypto via an exchange, your funds will be allocated to your Exchange Crypto Wallet; Sometimes known as your Spot Trading Account, it is essentially a place to keep your crypto holdings secure within the exchange.

If you don’t plan on trading or staking your crypto on the exchange, you can move your funds to a Hot Wallet (also known as DeFi Wallets) or a Cold Wallet for added security. Learn how to transfer cryptourrencies safely and securely here.

Some popular crypto wallets include…

  • Exodus
    A beginner-friendly DeFi wallet powered by Solana. Connects with the FTX exchange and Magic Eden NFT marketplace.
  • Metamask
    A DeFi wallet for advanced users powered by Ethereum. Connects users to multiple crypto platforms including NFT marketplaces.
  • Coinbase
    A DeFi wallet for both beginners and advanced users powered by Ethereum. Connects with the Coinbase exchange and Coinbase NFT marketplace.
  • Ellipal
    A beginner-friendly hardware wallet. Cannot connect to online platforms. Can connect with Ellipal DeFi wallet.
  • Trezor
    A hardware wallet for both beginners and advanced users. Cannot connect to online platforms. Can connect with multiple DeFi wallets.

You can easily learn and compare information about popular crypto wallets with Coinfall.

Our thoughts

Cryptocurrencies provide solutions to many shortcomings of the traditional financial system. Extreme economic inequality, identity theft, and most importantly high fees are some of the potential issues it was designed for and has the potential to address.

We believe that recognising the vast potential in blockchain technology beyond the financial sector is critical – So far disrupting traditional methods of business on the Internet (web3), Logistics (supply chains), and Art (NFTs) industries.

By spreading the word about cryptocurrency to ordinary people, we look for satisfaction in the financial freedom and decentralised ideologies that we hope positively impact communities across the globe.

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  1. By publishing this guide, we are not recommending or suggesting in any way or form that Cryptocurrency is a suitable investment.
  2. We published and routinely update this guide to help people decide what’s best for them – Coinfall is conservative – Bitcoin has proven to be highly volatile in 2021 and 2022 and we strongly suggest reading this guide from the FMA before making any investment. Like the FMA, Coinfall is also cautious.
  3. We present this information in good faith and remain objective at all times. ​By including this guide, we are not advocating that cryptocurrency is an investment. We may earn a referral bonus for anyone that clicks on some of our links – see our disclaimer for more details.