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103 views

What is a Cryptocurrency - BabyPips.com

Crypto currency baby steps

Uploaded by

alicewillian86
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Introduction

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What is a Cryptocurrency?

What is a cryptocurrency?

Cryptocurrencies have become


extremely popular in recent years.
Not just online, but everywhere.

You’ve probably even seen TV


commercials about cryptocurrencies
being the next big thing. And maybe
even your favorite actor or athlete
promoting them.

But what are they?

How are they different from


traditional currencies? What makes
them so special?

What are
cryptocurrencies?

A cryptocurrency (or “crypto”) is


an umbrella term for a new kind of
“digital money” that relies on a
combination of technologies that
allows it to exist outside the
control of central authorities like
governments and banks.

Cryptocurrencies are
digital.

Cryptocurrencies have no physical


form. There are no dollar bills or
metal coins.

They are completely digital,


meaning they’re literally just lines of
computer code.

Cryptocurrencies are
borderless.

Regardless of where you live or who


you are, you can send it almost
instantaneously to others anywhere
in the world, without concern for
geographic distance and country
borders.

Cryptocurrencies are borderless.


All you need is a device, like a
phone or a computer, that’s
connected to the internet.

Cryptocurrencies are
permissionless.

Anybody can send and receive


cryptocurrencies. You don’t need to
register an account or fill out an
application. Cryptocurrencies are
permissionless.

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You don’t even need to give your


name. Instead of names and
account numbers, all you need to
provide is a computer-generated
string of letters and numbers known
as an “address”.

This address is not inherently tied to


any of your personal information, so
you can theoretically send
cryptocurrencies to other people
without ever knowing each other’s
actual identities.

Since you can send and receive


cryptocurrencies without giving any
personally identifying information,
cryptocurrencies provide some
degree of privacy.

Cryptocurrencies are
decentralized.

Unlike traditional currencies, also


known as “fiat” currencies, such
as the U.S. dollar, cryptocurrencies
are not connected to any
government or central bank.

For example, the U.S. dollar is


issued and controlled by the Federal
Reserve (“Fed”), the euro by the
European Central Bank (ECB), and
the Japanese yen by the Bank of
Japan (BOJ).

This means that, unlike fiat


currencies, cryptocurrencies are not
controlled by a central authority.
There is no bank or government
behind them. This defining feature
of cryptocurrencies is known as
decentralization.

If no central bank or government


issues or creates cryptocurrencies,
then who creates them?

Units of a cryptocurrency are


generated based on predetermined
rules written in code which are
executed by software.

One of the most important aspects


of cryptocurrencies is their supply
since this heavily determines their
utility and value.

Depending on the rules written in


the code of the software,
cryptocurrencies can be created and
destroyed. Some cryptocurrencies
have a finite (or fixed) total supply,
meaning that there is a maximum
number of units that will ever be in
circulation, creating scarcity.

Others are launched with an infinite


total supply, meaning there is no
maximum cap! (Although there
might be a limit on the number of
new units that can be created within
a certain timeframe such as on a
yearly basis.)

Cryptocurrencies are
counterfeit-proof.

Cryptocurrencies are also designed


to be counterfeit-proof.

This is where cryptography is


involved and how it’s used to
securely record and store
transactions.

In cryptography, the prefix “crypt”


means “hidden” and the suffix
“graphy” means “writing”.

Before computers existed,


cryptography was the study of
techniques to keep handwritten
information safe from prying eyes.

Even Julius Caesar was known to


use cryptography to communicate
with his generals.

But in the modern age, cryptography


is now associated with protecting
computer information using fancy
math.

Since cryptocurrencies rely on


cryptography for their security, that’s
where the ”crypto” comes from in
“cryptocurrencies.”

What makes
cryptocurrencies
special?

Cryptocurrencies exist
independently from any government,
central bank, or other central
institution.

In summary, cryptocurrencies are


special because:

They are digital.

Cryptocurrencies have no

physical form. Everything is

done from phones and

computers.

They are borderless. Anyone

with an internet connection can

send and receive

cryptocurrencies. anywhere in

the world, with (usually) smaller

fees and faster speeds than

traditional money transfers.

They are permissionless and

available to everyone. You don’t

need to be approved by a bank

and have a bank account to use

cryptocurrencies. No third party

(like a bank) needed to confirm

and approve transactions.

They provide some degree of

privacy, which means that you

can make transactions without

using your name. Different

cryptocurrencies vary in the

degree of anonymity they

provide.

They are decentralized, which

means governments can’t

meddle with or control them. No

one person or entity owns or

controls them. Users can

transact directly without the

involvement of any intermediary,

which for fiat currencies, would

usually be a bank.

They are created by software.

The supply of a cryptocurrency

is NOT determined by any

central bank but based on

predefined rules explicitly

written in software code. In

other words, software replaces

the central bank.

They are counterfeit-proof.

This is due to the way the

transaction information is

recorded and stored.

Due to these special characteristics,


cryptocurrencies provide the
potential to give people total
control of their money with zero
involvement from a third party.

Whether crypto can live up to this


potential remains to be seen. Its
popularity in the financial world is
growing and is now considered an
emerging asset class.

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Next Lesson
Crypto As A New Asset Class

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