Crypto: The Essentials About Digital Money

You are explaining cryptо in simple terms in 10 minutes. If you’ve heard of Bitcoin or blockchain but don’t understand anything about them — this article is for you!

Here’s what you’ll learn:

  • What crypto is and what it’s used for.
  • How crypto and blockchain are connected.
  • What types of crypto exist besides Bitcoin and Ethereum.
  • How and where to store crypto.
  • How to evaluate the potential of a specific crypto.

We recently published an article dedicated to Bitcoin. Be sure to read it so you know the details and don’t encounter any difficulties with this article.

What is Crypto?

Crypto is a digital decentralized currency that uses cryptography to secure transactions and control the creation of new units. It also uses a distributed blockchain to record transactions without the involvement of centralized authorities. Unlike traditional money, it does not have a physical form of coins or notes.

Crypto coins are stored in a crypto wallet or on an exchange, but only visually. In reality, they are stored on the blockchain — a free database that simultaneously exists on multiple computers worldwide. It’s like regular money — stored in a bank account, and you can access it with any linked card.

The first and most well-known crypto was Bitcoin, created in 2009 by a person or group using Satoshi Nakamoto’s pseudonym. Bitcoin was conceived as a decentralized currency that banks or governments did not control.

After Bitcoin’s success, thousands of other crypto with various features and advantages emerged. They began to be used not only for purchases but also for creating smart contracts, participating in projects, saving, creating NFT tokens, and more.

The main idea behind most crypto is decentralization. They are independent and secure, providing users with financial freedom impossible in traditional systems.

Crypto and Blockchain

The blockchain is a distributed database that records crypto transactions. It’s like a huge ledger that records all coin transfers. Millions of users around the world simultaneously store this information.

Regular money — rubles, dollars, euros, etc., issued by central banks cannot be used on the blockchain.

Crypto coins act as the “fuel” for the blockchain, allowing transactions to be made and recorded. The situation is similar to paying for public transportation with tokens: without a unique token, the system cannot operate.

Crypto is a new generation of money explicitly created for the blockchain. It allows for securely and transparently transferring funds within decentralized networks, which is impossible with regular fiat money.

Thus, the existence of crypto is inextricably linked to blockchain technology. Crypto and blockchain have become integral to the financial system, allowing people to interact without intermediaries.

We wrote more about blockchain technology in our last article. You can read it here.

What Makes Crypto Unique?

Let’s look at the key features of crypto:

  • Decentralization: It operates autonomously without a central authority, preventing manipulation.
  • Transparency and Immutability: The blockchain ensures the transparency and immutability of transaction history.
  • Programmability: Some crypto, like Ethereum, support smart contracts and decentralized applications.
  • Global Accessibility: It enables seamless international transactions and money transfers.
  • Limited Coin Supply: Many cryptocurrencies have a limited supply, which increases their attractiveness over time and provides effective inflation management compared to fiat currencies.

Where to Store Crypto: Crypto Wallets

A crypto wallet is an application similar to a bank app, except it stores crypto instead of regular money. Its main task is to ensure the security of your coins.

Crypto wallets use complex mathematical algorithms and data encryption to protect all your transactions and personal information from hacking. Whenever you make a crypto transfer, the wallet generates a unique digital signature using a private key — a hash. This signature cannot be forged.

Other blockchain participants can verify this signature and ensure the money is truly yours. After that, the transaction is officially recorded on the blockchain. However, the identities of the sender and receiver remain secret. The blockchain only shows encrypted wallet addresses, not your names or other personal data. You can draw an analogy with sending a letter by mail. The postal worker only sees the addresses on the envelope but needs to know what’s inside or who it’s from.

Crypto wallets are secure digital storage solutions that, thanks to mathematical algorithms and blockchain technology, allow people to send crypto directly, quickly, and anonymously to each other.

Crypto wallets can be cold (cold) or hot (hot) — they differ in how they store private keys and their level of security.

Cold Wallets:

  • Not connected to the Internet and therefore practically immune to hacker attacks.
  • Private keys are stored offline on physical media.
  • They provide maximum security but are less convenient for daily transactions.
  • Most suitable for long-term holding and storing large amounts of cryptocurrencies.

Example: Hardware wallets — devices that resemble USB drives that store your private keys in hardware.

Hot Wallets:

  • Constantly connected to the Internet to conduct transactions.
  • Private keys are stored in software or an online service.
  • More convenient for daily payments and quick access to funds.
  • Less secure as they are vulnerable to hacker attacks, malware, and loss of access.
  • Recommended for storing small amounts of cryptocurrencies.

Examples: Mobile wallets — smartphone apps that allow you to receive, store, and send cryptocurrency; online wallets — accessible via a web interface on the Internet.

For increased security, it is considered best practice to use a cold wallet for long-term storage of main assets and a hot wallet for daily transactions with small amounts.

Types of Crypto

There are many cryptos, but some clear leaders stand out: Bitcoin, Ethereum, Tether, and others.

  • Bitcoin (BTC) — the first and most well-known crypto. The maximum number of bitcoins that will ever be issued is limited to 21 million coins. This fixed limit was built into Bitcoin’s original code as a measure against inflation.
  • Ethereum (ETH) comes next in popularity. Unlike Bitcoin, it can be used for money transfers and implementing smart contracts without intermediaries, allowing a vast ecosystem to be built around Ethereum.

Of course, there are many other crypto as well. They are commonly referred to as altcoins. Altcoins are any alternative crypto that emerged after Bitcoin. Even Ethereum is considered an altcoin. We’ll talk more about altcoins in the following article, but for now, let’s look at the most popular ones:

  • Dogecoin (DOGE) started as a meme about a dog but gained such popularity that now an entire ecosystem is built around the project, and many stores accept payments in $DOGE.
  • Solana (SOL), a high-performance blockchain, can process up to 65,000 transactions per second thanks to its unique Proof of History consensus protocol and parallel transaction processing. It has low transaction fees and is designed for applications that require high throughput and speed, such as decentralized finance (DeFi), NFTs, and games. This practical application of Solana demonstrates its potential in the real world.
  • Binance Coin (BNB) is a utility token for trading, investing, and fueling the Binance ecosystem.
  • Telegram Open Network (TON) is a blockchain platform developed by the creators of Telegram messenger. TON is integrated with Telegram, providing access to its massive user base.

Separately, we can highlight stablecoins — tokens whose price is firmly pegged to the US dollar. This stability means one stablecoin can always be exchanged for 1 US dollar, making stablecoins a secure and reliable crypto. The most popular stablecoins, such as USDT, USDC, and DAI, play a crucial role in the crypto market, providing a safe haven for investors in times of volatility.

Crypto Market Capitalization

Market capitalization is a metric that reflects the total value of all coins of a particular crypto. It is considered one of the leading indicators of a crypto project’s potential and reliability.

To determine the market cap, you need to take the current price of one coin and multiply it by the total number of existing coins of that crypto in circulation. For example, if one coin is worth $1000 and 1000 coins issued, the project’s market cap would be $1000 * 1000 = $1,000,000.

Usually, the higher a crypto market cap, the more stable, popular, and “heavyweight” it is. A high market cap indicates a solid project that many investors believe in.

A low market cap could mean the coin is new, risky, and unstable. Its price will fluctuate greatly and depend on market speculation.

However, market cap is just one factor in evaluating a crypto’s potential. For a comprehensive assessment, you also need to study the project itself, the development team, technologies, and potential applications of the coin.

What Can We Expect from Crypto in the Future?

Opinions on the future of crypto vary:

Optimists believe that crypto projects will transform modern finance. Decentralized currencies will displace traditional money and gold to save and transact.

On the other hand, skepticism is convinced that crypto will remain a niche market without seriously impacting the conventional financial system.

A third group of experts believes that crypto’s potential lies in blockchain technology and smart contracts, with Ethereum and similar platforms forming the basis of a new decentralized Internet of the future.

For now, it’s impossible to say which development paths will be correct. One thing is sure: crypto and blockchain have already influenced the world, and this influence will only grow in the coming years.

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