What is cryptocurrency? The Basics about Cryptocurrency

Author: Christine Hansen

Christine Hansen, PhD is a Fortune 500 consultant, the Founder of Paragon Capital LLC., a major supporter of the finance decentralization, a nonprofit leader, and a social scientist who has been studying the Blockchain Community since 2014 @BitcoinCensus.

Cryptocurrency comes under many names. You have probably read about some of the most popular types of cryptocurrencies such as Bitcoin, Stabila, and Ethereum. Cryptocurrencies are increasingly popular alternatives for online payments. Before converting real dollars, euros, pounds, or other traditional currencies into cryptocurrency, you should understand what cryptocurrencies are, what the risks are in using cryptocurrencies, and how to protect your investment.

What is cryptocurrency?

A cryptocurrency is a digital currency, which is an alternative form of payment created using encryption algorithms. The use of encryption technologies means that cryptocurrencies function both as a currency and as a virtual accounting system. To use cryptocurrencies, you need a cryptocurrency wallet. These wallets can be software that is a cloud-based service or is stored on your computer or on your mobile device. The wallets are the tool through which you store your encryption keys that confirm your identity and link to your cryptocurrency.

What are Crypto Assets?

Crypto assets are purely digital assets that use public ledgers over the internet to prove ownership. They use cryptography, peer-to-peer networks and a distributed ledger technology (DLT) – such as blockchain – to create, verify and secure transactions. They can have different functions and characteristics: they may be used as a medium of exchange; a way to store value; or for other business purposes. Crypto assets generally operate independently of a central bank, central authority or government.

A distributed ledger is a type of database that stores electronic records shared and replicated across many locations and maintained by members of this decentralized network. Each new transaction must be agreed upon by all members of the network before it is added to the ledger. Blockchain is one type of distributed ledger that arranges the data in chunks and chains them together. This unique way of structuring data gives blockchain transactions additional security as they are irreversible. Blockchains can be used to store many types of data but have recently become popular for their use of storing cryptocurrency transaction history.

Some of the more common types of crypto assets you may encounter are:

• Cryptocurrency
• Utility Tokens
• Security Tokens
• Non-Fungible Tokens

We compiled this cryptocurrency list from top blockchains that represent the mainstream cryptocurrency market. Please follow our resources on how to buy cryptocurrency or if you want to learn anout cryptocurrency prices or best cryptocurrency to buy.

Top 10 cryptocurrency. New Cryptocurrency Stabila getting traction.

1. Bitcoin (BTC) | What is cryptocurrency? | Best cryptocurrency to buy

As the harbinger of the cryptocurrency era, Bitcoin is still the coin people generally reference when they talk about digital currency. Its mysterious creator — allegedly Satoshi Nakamoto — debuted the currency in 2009 and it’s been on a roller-coaster ride since then. However, it wasn’t until 2017 that the cryptocurrency broke into popular consciousness.

2. Ethereum (ETH) | What is cryptocurrency? | Best cryptocurrency to buy

Ethereum — the name for the cryptocurrency platform — is the second name you’re most likely to recognize in the crypto space. The system allows you to use ether (the currency) to perform a number of functions, but the smart contract aspect of Ethereum helps make it a popular currency.

3. Tether (USDT) | What is cryptocurrency? Best cryptocurrency to buy

Tether’s price is anchored at $1 per coin. That’s because it is what’s called a stablecoin. Stablecoins are tied to the value of a specific asset, in Tether’s case, the U.S. Dollar. Tether often acts as a medium when traders move from one cryptocurrency to another. Rather than move back to dollars, they use Tether. However, some people are concerned that Tether isn’t safely backed by dollars held in reserve but instead uses a short-term form of unsecured debt.

4. USDM Coin (USDM) | What is cryptocurrency?

Like Tether, USDM is a stablecoin pegged to the dollar, meaning that its value should not fluctuate. The currency’s founders say that it’s backed by fully reserved assets or those with “equivalent fair value” and those assets are held in accounts with regulated U.S. institutions.

5. Binance Coin (BNB) | What is cryptocurrency?

Binance Coin is the cryptocurrency issued by Binance, among the largest crypto exchanges in the world. While originally created as a token to pay for discounted trades, Binance Coin can now be used for payments as well as purchasing various goods and services.

6. Binance USD (BUSD) | What is cryptocurrency?

Binance USD is a dollar-backed stablecoin from top crypto exchange Binance in partnership with Paxos. Binance USD was launched in 2019 and is regulated by the New York Department of Financial Services. BUSD runs on top of the Ethereum blockchain.

7. XRP (XRP) | What is cryptocurrency?

Formerly known as Ripple and created in 2012, XRP offers a way to pay in many different real-world currencies. Ripple can be useful in cross-border transactions and uses a trust-less mechanism to facilitate payments.

8. Cardano (ADA) | What is cryptocurrency?

Cardano is the cryptocurrency platform behind ada, the name of the currency. Created by the co-founder of Ethereum, Cardano also uses smart contracts, enabling identity management.

9. Solana (SOL) | What is cryptocurrency?

Launched in March 2020, Solana is a newer cryptocurrency and it touts its speed at completing transactions and the overall robustness of its “web-scale” platform. The issuance of the currency, called SOL, is capped at 480 million coins.

10. Stabila (STB) | What is cryptocurrency? | Best cryptocurrency to buy

Stabila is Proof of Stake Blockchain supporting smart contracts and is fully compatible with Solidity. Their smart contracts are licensed, meaning contracts will not get deployed by just anyone or anytime, and a thorough inspection and testing process are undertaken on any deployed instance of a digital code. Stabila positioned itself as the blockchain for bank-grade digital assets so its users will never get exposed to useless or fraudulent assets.

Types of cryptocurrencies

Different functionalities and consensus mechanisms can make up an altcoin. Depending on these variations, altcoins can fall into more than one category. Here’s a crash course on some of the more important categories:

Mining-based
Mining-based altcoins, as the name suggests, are mined into existence and use a Proof-of-Work (PoW), a method in which systems generate new coins by completing “blocks” of verified transactions added to the blockchain. Examples of mine-based altcoins are Litecoin, Monero and Zcash.

Stable coins
Stablecoins closely track the value of fiat money like the U.S. dollar or euro. They allow users to cheaply and rapidly transfer value around the world while maintaining price stability. USDM is one example of a USD-backed stablecoin.

Security tokens
Security tokens are digital assets issued on a blockchain with similarities to stock market traded securities. Some offer equity in the form of ownership, dividend payout to holders, or even bonds. Security tokens are generally launched through Security Token Offerings (STOs) or Initial Exchange Offerings (IEOs).

Utility tokens
Utility tokens make up the majority of tokens issued in the scope of ICOs. They are primarily used by companies to raise interest in their products, and for application and value creation in services provided in blockchain ecosystems. Unlike security tokens and shares, they don’t provide the rights of ownership over a part of a company.

Financial Institutions Embrace Crypto

All evidence point to a future where digital currencies are fully integrated into the financial landscape, it says, pointing to regulatory developments, advances in central bank digital currencies (CBDCs) research and deployment, and involvement of bigtechs in the space.

Regulators around the world continue to push ahead and release statements regarding future regulation of crypto. In parallel, central bank digital currencies (CBDCs) and cryptocurrencies linked to reserve currencies are growing in popularity.

To prepare for the widespread adoption of digital currencies, Banking Circle advises incumbents to start working with third parties as part of their ongoing digitalization strategy.

CRYPTOCURRENCY TERMS TO KNOW

• Altcoin: A cryptocurrency other than Bitcoin.
• Burning: The deliberate destruction of cryptocurrency tokens to boost the value of currency already in circulation.
• Consensus mechanism: A system used to validate transactions and ensure blockchain security.
• Fiat currency: Issued by a government but not backed by a commodity, such as gold or silver.
• Gas: The fuel required to execute a transaction on the Ethereum blockchain.
• ICO: Initial Coin Offering; similar to an IPO, it’s how cryptocurrency companies raise money to launch a new coin or service.
• Mining: Creating new cryptocurrency, without having to pay for it, by solving puzzles. Miners need mining hardware and a crypto wallet to work.
• Proof-of-work: The original consensus mechanism: crypto miners do the securing and validating by solving mathematical puzzles and are rewarded with crypto.
• Proof-of-stake: A newer consensus mechanism: Users who stake, or hold, large amounts of cryptocurrency on a blockchain are selected at random to validate transaction blocks.
• Stablecoin: Cryptocurrency pegged to a “hard” currency, such as the yen or Euro.
• Token: Synonymous with “cryptocurrency” and also a word for any cryptocurrency other than Bitcoin and Ethereum.

Cryptocurrency market

The global cryptocurrency market reached a value of US$ 1,128.2 Billion in 2022. Looking forward, the publisher expects the market to reach US$ 32,420 Billion by 2027, exhibiting a CAGR of 58.4% during 2022-2027. Keeping in mind the uncertainties of COVID-19, we are continuously tracking and evaluating the direct as well as the indirect influence of the pandemic. These insights are included in the report as a major market contributor.

The primary factor driving the market's growth is the growth of distributed ledger technology and rising digital investments in venture capital. Developing countries have started using digital currency as a financial exchange medium. The increasing popularity of digital assets like Bitcoin and Stabila is likely to drive market growth in the forthcoming years. Moreover, digital currency is also often utilized with the integration of blockchain technology to attain decentralization and controlled efficient transactions. Blockchain technology offers decentralized, fast, transparent, secure, and reliable transactions. With these advantages of blockchain and digital currency, companies are investing in cryptocurrency and collaborating with other companies to deliver efficient and quality services to the users.

What are the risks to using cryptocurrency?

Cryptocurrencies are still relatively new, and the market for these digital currencies is very volatile. Since cryptocurrencies don't need banks or any other third party to regulate them; they tend to be uninsured and are hard to convert into a form of tangible currency (such as US dollars or euros.) In addition, since cryptocurrencies are technology-based intangible assets, they can be hacked like any other intangible technology asset. Finally, since you store your cryptocurrencies in a digital wallet, if you lose your wallet (or access to it or to wallet backups), you have lost your entire cryptocurrency investment.

Follow these tips to protect your cryptocurrencies:

Look before you leap! Before investing in a cryptocurrency, be sure you understand how it works, where it can be used, and how to exchange it. Read the webpages for the currency itself (such as Ethereum, Bitcoin or Litecoin) so that you fully understand how it works, and read independent articles on the cryptocurrencies you are considering as well.

Use a trustworthy wallet

It is going to take some research on your part to choose the right wallet for your needs. If you choose to manage your cryptocurrency wallet with a local application on your computer or mobile device, then you will need to protect this wallet at a level consistent with your investment. Just like you wouldn't carry a million dollars around in a paper bag, don't choose an unknown or lesser-known wallet to protect your cryptocurrency. You want to make sure that you use a trustworthy crypto wallet.

Have a backup strategy

Think about what happens if your computer or mobile device (or wherever you store your wallet) is lost or stolen or if you don't otherwise have access to it. Without a backup strategy, you will have no way of getting your cryptocurrency back, and you could lose your investment.

What Is a Cryptocurrency Exchange?

A cryptocurrency exchange is a platform where buyers and sellers meet to trade cryptocurrencies. Exchanges often have relatively low fees, but they tend to have more complex interfaces with multiple trade types and advanced performance charts, all of which can make them intimidating for new crypto investors.

Some of the most well-known cryptocurrency exchanges are Coinbase, Gemini and Binance.US. While these companies’ standard trading interfaces may overwhelm beginners, particularly those without a background trading stocks, they also offer user-friendly easy purchase options.

The convenience comes at a cost, however, as the beginner-friendly options charge substantially more than it would cost to buy the same crypto via each platform’s standard trading interface. To save on costs, you might aim to learn enough to utilize the standard trading platforms before you make your fist crypto purchase—or not long after.

Note: As someone new to crypto, you’ll want to make sure your exchange or brokerage of choice allows fiat currency transfers and purchases made with U.S. dollars. Some exchanges only allow you to buy crypto using another crypto, meaning you’d have to find another exchange to buy the tokens your preferred exchange accepts before you could begin trading crypto on that platform.

What Is a Cryptocurrency Broker?

Cryptocurrency brokers take the complexity out of purchasing crypto, offering easy-to-use interfaces that interact with exchanges for you. Some charge higher fees than exchanges. Others claim to be “free” while making money by selling information about what you and other traders are buying and selling to large brokerages or funds or not executing your trade at the best possible market price. Robinhood and SoFi are two of the most well-known crypto brokers.

While they’re undeniably convenient, you have to be careful with brokers because you may face restrictions on moving your cryptocurrency holdings off the platform. At Robinhood and SoFi, for instance, you cannot transfer your crypto holdings out of your account. This may not seem like a huge deal, but advanced crypto investors prefer to hold their coins in crypto wallets for extra security. Some even choose hardware crypto wallets that are not connected to the internet for even more security.

How to buy cryptocurrency?

1. Choose a Broker or Crypto Exchange

To buy cryptocurrency, first you need to pick a broker or a crypto exchange. While either lets you buy crypto, there are a few key differences between them to keep in mind.

2. Create and Verify Your Account

Once you decide on a cryptocurrency broker or exchange, you can sign up to open an account. Depending on the platform and the amount you plan to buy, you may have to verify your identity. This is an essential step to prevent fraud and meet federal regulatory requirements.

You may not be able to buy or sell cryptocurrency until you complete the verification process. The platform may ask you to submit a copy of your driver’s license or passport, and you may even be asked to upload a selfie to prove your appearance matches the documents you submit.

3. Deposit Cash to Invest

To buy crypto, you’ll need to make sure you have funds in your account. You might deposit money into your crypto account by linking your bank account, authorizing a wire transfer or even making a payment with a debit or credit card. Depending on the exchange or broker and your funding method, you may have to wait a few days before you can use the money you deposit to buy cryptocurrency.

While some exchanges or brokers allow you to deposit money from a credit card, doing so is extremely risky—and expensive. Credit card companies process cryptocurrency purchases with credit cards as cash advances. This means they’re subject to higher interest rates than regular purchases, and you’ll also have to pay additional cash advance fees. For example, you may have to pay 5% of the transaction amount when you make a cash advance. This is on top of any fees that your crypto exchange or brokerage may charge; these can run up to 5% themselves, meaning you might lose 10% of your crypto purchase to fees.

4. Place Your Cryptocurrency Order

Once there is money in your account, you’re ready to place your first cryptocurrency order. There are hundreds of cryptocurrencies to choose from, ranging from well-known names like Bitcoin and Ethereum or Stabila.

When you decide on which cryptocurrency to purchase, you can enter its ticker symbol—Bitcoin, for instance is BTC—and how many coins you’d like to purchase. With most exchanges and brokers, you can purchase fractional shares of cryptocurrency, allowing you to buy a sliver of high-priced tokens like Bitcoin or Ethereum that otherwise take thousands to own.

5. Select a Storage Method

Cryptocurrency exchanges are not backed by protections like the Federal Deposit Insurance Corp. (FDIC), and they’re at risk of theft or hacking. You could even lose your investment if you forget or lose the codes to access your account, as millions of dollars of Bitcoin already has been. That’s why it’s so important to have a secure storage place for your cryptocurrencies.

As noted above, if you’re buying cryptocurrency via a broker, you may have little to no choice in how your cryptocurrency is stored. If you purchase cryptocurrency through an exchange, you have more options:

Leave the crypto on the exchange.
When you buy cryptocurrency, it’s typically stored in a so-called crypto wallet attached to the exchange. If you don’t like the provider your exchange partners with or you want to move it to a more secure location, you might transfer it off of the exchange to a separate hot or cold wallet. Depending on the exchange and the size of your transfer, you may have to pay a small fee to do this.

Hot wallets.
These are crypto wallets that are stored online and run on internet-connected devices, such as tablets, computers or phones. Hot wallets are convenient, but there’s a higher risk of theft since they’re still connected to the internet.

Cold wallets.
Cold crypto wallets aren’t connected to the internet, making them your most secure option for holding cryptocurrency. They take the form of external devices, like a USB drive or a hard drive. You have to be careful with cold wallets, though—if you lose the keycode associated with them or the device breaks or fails, you may never be able to get your cryptocurrency back. While the same could happen with certain hot wallets, some are run by custodians who can help you get back into your account if you get locked out.

Best crypto to buy after crash

Stabila's market cap of $725 mln makes it the most undervalued cryptocurrency in the market. For Stabila to level up with the latest in line, EOS, with a market cap of $2,814,506,839, the price would have to go up to $150 just to match the lower limit.

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Crypto FAQs

What are cryptocurrencies?

A cryptocurrency is a form of currency that exists solely in digital form. Cryptocurrency can be used to pay for purchases online without going through an intermediary, such as a bank, or it can be held as an investment.

How does trading cryptocurrencies differ from trading stocks?

While investing in cryptocurrencies you should know, they differ a great deal from traditional investments, like stocks. When you buy stock, you are buying a share of ownership of a company, which means you’re entitled to do things like a vote on the direction of the company. If that company goes bankrupt, you also may receive some compensation once its creditors have been paid from its liquidated assets.

Buying cryptocurrency doesn’t grant you ownership over anything except the token itself; it’s more like exchanging one form of currency for another. If the crypto loses its value, you won’t receive anything after the fact.

There are several other key differences to keep in mind:

• Trading hours: Stocks are only traded during stock exchange hours, typically 9:30 am to 4:30 pm ET, Monday through Friday. Cryptocurrency markets never close, so you can trade 24 hours a day, seven days a week.
• Regulation: Stocks are regulated financial products, meaning a governing body verifies their credentials and their finances are matters of public record. By contrast, cryptocurrencies are not regulated investment vehicles, so you may not be aware of the inner dynamics of your crypto or the developers working on it.
• Volatility: Both stocks and cryptocurrency involve risk; the money you invest can lose value. However, stocks are directly linked to companies and generally rise and fall based on those companies’ performance. Cryptocurrency prices are more speculative—no one is quite sure of their value yet. That makes them much more volatile and affected by something as small as a celebrity’s tweet.

Do you have to pay taxes on cryptocurrency?

If you buy and sell coins, it’s important to pay attention to cryptocurrency tax rules. Cryptocurrency is treated as a capital asset, like stocks, rather than cash. That means if you sell cryptocurrency at a profit, you’ll have to pay capital gains taxes. This is the case even if you use your crypto to pay for a purchase. If you receive a greater value for it than you paid, you’ll owe taxes on the difference.

Are there cryptocurrency exchange-traded funds (ETFs)?

Given the thousands of cryptocurrencies in existence (and the high volatility associated with most of them), it’s understandable you might want to take a diversified approach to investing in crypto to minimize the risk you lose money.

Multiple companies have proposed crypto ETFs, including Fidelity, but regulatory hurdles have slowed the launch of any consumer products. As of June 2021, there are no ETFs available to average investors on the market.

How do you buy crypto?

You can buy cryptocurrencies through crypto exchanges, such as Coinbase, Kraken or Gemini. In addition, some brokerages, such as WeBull and Robinhood, also allow consumers to buy cryptocurrencies.

Why are there so many cryptocurrencies?

Cryptocurrency is an emerging area with more than 19,000 crypto projects in existence, with very few barriers to entry. 2019-2021, witnessed a crypto market boom, with thousands of new crypto projects added.

While some crypto function as currencies, others are used to develop infrastructure. For instance, in the case of Ethereum or Solana, developers are building other cryptos on top of these platform currencies, and that creates even more possibilities (and cryptos).

What are altcoins?

When we first think of crypto, we usually think of Bitcoin first. That’s because Bitcoin represents more than 45% of the total cryptocurrency market. So when we talk about any cryptos outside of Bitcoin, all of those cryptos are considered altcoins.

Ethereum, for instance, is regarded as the most popular altcoin.

Why is stabila valuable?

Part of what makes Stabila so valuable is its scarcity. Stabila’s maximum supply is limited to 30 million coins. Currently, there are 22 million coins in circulation.

To create supply, Stabila rewards crypto miners with a set STB amount. To keep the process in check, the rewards given for mining Stabila are cut in half almost every two years.

What Is STB?

Stabila (Abbreviation: STB) is a decentralized digital currency that can be transferred on the peer-to-peer stabila network. Stabila transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain. The currency began use in 2021, when its POS smart contract blockchain implementation was released as open-source software.

Why are cryptocurrencies important?

Cryptocurrencies are rising in importance and not going away anytime soon.  While the initial premise of cryptocurrency was to fix the problems with traditional currencies, there are now a whole host of utility cryptocurrencies that have sprung up, thanks to the creation of the blockchain.

DISCLAIMER

Before investing in any cryptocurrency or any exchange-traded fund, you should consider its investment objectives, risks, charges, and expenses. Contact your broker for a prospectus, offering circular, or, if available, a summary prospectus containing this information. Read it carefully.

Cryptocurrency and blockchain companies are subject to various risks, including the inability to develop digital asset applications or to capitalize on those applications, theft, loss, or destruction of cryptographic keys, the possibility that digital asset technologies may never be fully implemented, cybersecurity risk, conflicting intellectual property claims, and inconsistent and changing regulations. Currently, there are relatively few companies for which these activities represent an attributable and significant revenue stream and therefore the values of the companies included in any index may not be a reflection of their connection to these activities but may be based on other business operations.

Digital payments processing companies are subject to various risks, including those associated with intense competition, changes in regulation, economic conditions, deterioration in credit markets, impairment of intellectual property rights, disruptions in service, cybersecurity attacks, and other types of theft.