What is Cryptocurrency?

You’ve undoubtedly heard the stories. 

Some detail massive rags-to-riches gains. Others sew  tales of woe and speak of back-breaking losses. Whether fueled by facts or hyperbole, one thing is certain.

Cryptocurrency is everywhere.

What started as a practical solution for peer-to-peer transactions is now a worldwide phenomenon. 

But what is crypto, exactly? 

Consider this guide as a crash course in cryptocurrency for beginners.

What is Cryptocurrency, and How Does it Work? 

Cryptocurrency is digital currency used for speculative investment and as a method of payment. 

Crypto runs on blockchain technology. 

The blockchain consists of blocks of shared and agreed upon information. The totality of blocks creates a chain. That chain is immutable.

Blockchain transactions are permanent unless all parties agree upon changes. It is virtually counterfeit-proof.

As a payment system, cryptocurrency offers decentralized peer-to-peer transactions. 

Completing decentralized transactions doesn’t require an intermediary such as a bank, financial institution, or government. Only the parties involved are privy to the transaction, and the blockchain ensures accurate accounting and transfer of funds. 

Decentralization makes crypto an efficient medium of payment for transactions across borders.

Cryptocurrency eliminates the need for banks or other controlling parties. Decentralization ensures transactions are cheaper, instantaneous, secure, and private.    

No personal offline information is shared during a crypto transaction, making it completely anonymous. 

Common Types of Cryptocurrency 

So, if cryptocurrency is digital, what are crypto coins? And how do you acquire and spend them? 

Those are great questions. 

Keep in mind that there are approximately 23,000 cryptocurrencies. 

The short answer is that cryptocurrency and crypto coins are the same thing. 

There is no physical representation of a crypto coin. Any shiny item that resembles a denominated coin is purely symbolic and holds no value, relevance, or redemption value to cryptocurrency. 

Of the plethora of available crypto, a few stand alone in terms of popularity, value, and utility. 

Bitcoin

Bitcoin (BTC) was the first cryptocurrency.  

Created in 2009, it is the most popular, widely accepted, and valuable crypto. 

There are over 19 million (out of a possible 21 million) bitcoins in circulation, with a market cap of over $500 billion.

Many merchants across the globe accept payments in BTC. 

Bitcoin payments are instant, permanent, and do not allow chargebacks. 

They also do not include the transaction fees traditional credit card companies charge. 

The price of bitcoin has fluctuated between $0.0009 (2009) and a high of $68,789 (2021).

Traders speculate on the future of bitcoin’s price, buying and selling it on crypto exchanges at high volume. 

Ethereum

Ethereum—and its ether token (ETH)—is the No. 2 crypto in the world.

Ethereum is a blockchain platform used to create global, decentralized software solutions. 

Developers prefer ethereum because it is easily scalable, secure, and programmable. Much of ethereum-based technology looks to disrupt and change how industries work. 

Unlike bitcoin, ethereum charges transaction fees for blockchain maintenance. “Gas,” as the fees are called, is paid with ETH. 

ETH is used to purchase non-fungible tokens (NFTs), which are stored on the ethereum network. 

The tokens are also key to:

• Buying and selling in the metaverse.
• Decentralized finance.
• Smart contracts.

You can use ethereum as payment if a service provider accepts it. 

As a speculative investment, ethereum is openly traded on crypto exchanges. 

It has a market cap of over $196 billion, and there is no limit on the potential supply. 

Stablecoins

Stablecoins are cryptocurrencies whose value is directly related to an asset such as a financial instrument, currency, or commodity. 

Stablecoins are less volatile than bitcoin. Being backed by gold, the dollar, or other forms of established collateral helps keep pricing fairly stable. 

Stability may make stablecoins more desirable for trade than bitcoin. 

Buyers can rest assured that they are not giving up vast future worth when they pay with stablecoin. 

Sellers can be comfortable knowing that they are not accepting something as payment today that may be worth much less tomorrow. 

Practical Uses of Cryptocurrency 

So when is crypto a better option than cash? 

There’s a simple answer. 

Money transfers. 

For those who live far away but still support folks back home, money transfers can be expensive, inconvenient, and dangerous. 

Typically, the sender must take currency to a transfer agent. The sender identifies themselves and to whom they’re transferring money. They also have to pay a fee to send it. After all that, the sender still has to hope the funds reach the intended target. 

The recipient on the other end must go to an agent. They must present identification, linking them to the transfer. They’re then presented with cash and have to safely transport it and store it somewhere. 

The process is far from safe. Bad actors could easily target those they know have received cash. 

It may also take time for the transaction to process, meaning funds might not be readily available. Most bank transactions take several days to settle. Wire transfers usually take at least 24 hours. 

Cryptocurrency cures all of that. 

The sender and the receiver both have crypto wallets on their computer or smartphone. 

The sender decides how much to send to the receiver, inputs the information, and presses send. 

The receiver gets the transfer almost instantaneously. 

No outside parties are involved. No fees are subtracted. No one else knows that the money was sent or received. 

It’s anonymous, safe, and fast. 

Potential Benefits of Cryptocurrency 

Some of the potential benefits of cryptocurrency are:

• Decentralization
• Speedy transactions
• Anonymity
• Transparency
• Expanded availability

Potential Drawbacks of Cryptocurrency 

Potential drawbacks to cryptocurrency include:

• No refunds or cancellation of orders
• Lack of regulation
• Price volatility
• Coins can be lost
• Crypto can be used for criminal activity

The Future of Cryptocurrency 

The list of uses for cryptocurrency is ever expanding. 

Digital money is woven into the fabric of everyday life—as it should be. 

Crypto enriches our lives and helps make things simple, fast and safe. 

You can have the best of both worlds by using crypto in conjunction with tangible assets. 

To learn more about balancing your digital assets with physical gold, silver, and the precious metals IRA, call Advantage Gold. 

As the highest-rated precious metals firm, we have spent the last decade educating clients on the importance of precious metals investing.

We’ll show you how easy it is to own physical bars and coins in your IRA. 

The Gold IRA and the Silver IRA are perfect for those 59 ½ or with a 401(k) from a previous employer. 

The IRA rollover is tax-free, penalty-free and straightforward. 

Our account executives will walk you through the process step by step. 

Call us today, or use the link to tell us how to contact you. 

We’re happy to help.