What is Cryptocurrency? A Beginner’s Guide

Popularly called crypto, digital currency refers to decentralized digital currencies created to be used by individuals to perform financial transactions of any kind similar to traditional fiat currencies such as the US dollar but cryptocurrencies are not regulated by the government. 

What makes digital currency unique is that they are secured by cryptography - which allows digital assets to be performed and verified without the need for a trusted third party and protects it from being counterfeited and protecting users from illegal activities.

This article shares insights into essential things you need to know about cryptocurrency to help you understand it better as a beginner.

When digital currency launched

Bitcoin was the first digital currency launched in 2008. Today, it remains the most valuable crypto asset and the best-known. Alternate coins to bitcoin include Ethereum, bitcoin cash, litecoin etc. As of November 2021, there were over 18.8 million bitcoins in circulation with a total market cap of around $1.2 trillion, with the figure updating frequently. Only 21 million bitcoins will ever exist, preventing both inflation and manipulation.

How does digital currency work?

Digital currency are not a stack of notes or coins; rather they are only available on the internet, think of them as virtual tokens and their value is largely determined by market forces which are created by those who purchase or sell them. 

Digital currency are formed by using computer processing power to solve complex mathematical problems to earn coins which is known as mining. Users can also purchase the currencies from brokers, which they can then store and spend using encrypted wallets. They work based on blockchain technology.

Digital currency transfer coin ownership on a secure and distributed ledger using public-private key cryptography using an ultra secure password that shouldn’t be shared with anyone to perform transactions on the network.

What is blockchain?

A blockchain is simply a database or a public digital ledger containing a list of transactions that can be viewed and verified by anyone. The blockchain ledger is hosted across all the computers on the network, that are constantly verifying that the blockchain is accurate. This allows no database to be manipulated.

Blockchains allow transactions to be recorded using a hash, which is an immutable cryptographic signature which means if modifications are made, it will be immediately clear that the chain has been tampered with.

Types of digital currency

There are different kinds of cryptos all based on their own blockchain. Coins are designed to be used as a kind of currency and are created on their own blockchain. For example, Ether is a cryptocurrency on the Ethereum blockchain.

Altcoins - Short for Alternative coins refer to other cryptocurrencies that are not bitcoin but are block-chain based. Eg Litecoin (LTC), Ethereum, USDC (USDC).

Tokens - are a type of cryptocurrency considered to be programmable assets that allow the creation and execution of smart contracts. They can be used to represent money, coins, digital assets, electricity, and can also be sent and received.

Stable coins - These are cryptocurrencies that have their value attached to fiat currencies/assets. Stable coins are mostly pegged with the U.S. dollar. They have the same value as a national currency, but can be used to perform transactions and can be stored as crypto coins. You can save, send and spend stable coins on Afriex.

NFTs - Non-fungible tokens that are one-of-a-kind (unique) assets that cannot be duplicated. Eg Bitcoin, is fungible, which means you can exchange one for another and get the exact thing. NFTs can be in any form but they notably appear in art, music, blockchain-based video games, video, etc. 

Benefits of digital currency

Decentralization - It is not controlled by anyone.

Transferability - Crypto enables transactions between people to be seamless and easy to make as long as they are on the internet.

Security - Almost all cryptocurrencies are secured using blockchain technology, which constantly checks and verifies transactions to ensure transparency and limit fraud.

Access to financial opportunities for all - Regardless of where you are, as long as you are on the internet you have access to the same crypto assets as everyone else.

Risk limitation - With stable coins like USDC, which is pegged 1:1 to the U.S. dollar, anyone who is new to crypto can start here knowing that they are safe while they explore other investment options with crypto.

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Where to buy digital currency?

Various ways exist to buy cryptocurrencies. To do this, you will need to convert your fiat currency into cryptocurrency. You can then choose to either save (hold), invest, or trade with it and earn interest. You can buy, sell, and crypto with Afriex.

Where to store digital currency?

You can store cryptocurrency just like you store your traditional fiat. There are various ways to store crypto both online and off, Afriexapp customers can store, send, receive, and convert crypto on a computer, tablet, or phone. Need to transfer money from your bank account to your wallet? Afriexapp makes it easy!

What is the future of digital currency?

Cryptocurrency continues to pave the way for disruption and changes in finance and across industries, including art with NFTs, supply chains, decentralized internet, and more. The future for cryptocurrency is big regardless of current challenges such as regulations by governments, high consumption of energy, cases of scams, etc. 

Buy, sell and trade crypto all in your hands, here.

Kadijat Okeowo

At the intersection of digital/growth/product marketing, business and tech. Constantly learning, unlearning, re-learning. Passionate about products that solve the problems Africans have. Happily helping Afriexapp reach its next million users.