What is Cryptocurrency?

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What is Cryptocurrency?

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After 14 years, cryptocurrencies are now a familiar part of today’s financial system. Many people around the world use them to send value to their families and friends while various businesses accept them as payments to offer another option to their users.

But what is a cryptocurrency really and how it’s different from traditional money, like the US Dollar?

What is cryptocurrency?

Simply put, a cryptocurrency is a new form of money in digital form which is quite more flexible than its traditional counterparts, like the US Dollar or Euro.

Contrary to popular belief, Bitcoin was not the first cryptocurrency in the world, but it definitely was the first one to have such a great impact on the financial system. eCash is the first cryptocurrency in the world which was developed by DigiCash in 1990.

Later in 1998, another cryptocurrency named Bit Gold was introduced which followed many of Bitcoin’s main characteristics. Interestingly, Nick Szabo, one of the main pioneers in the crypto space was behind the project, convincing many that the project became the foundation of the Bitcoin whitepaper.

Cryptocurrency vs. fiat currency: what’s the difference

Fiat currencies, like the US dollar or Euro, are mostly issued and controlled by a central bank. For transferring value through fiat currencies, you have to rely on the traditional banking system which is mostly slow and comes with high fees.

Bitcoin was introduced as a faster, more secure, and open alternative to the current system benefiting from blockchain technology. We talk more about the technology itself later on, but let’s see how cryptocurrencies differ from fiat currencies, first:

  • Transparent: you can have access to all transaction data stored on a public blockchain
  • Decentralized: instead of a central server, a cryptocurrency will run on different systems distributed across the globe
  • Immutable: changing transaction records on a blockchain is extremely hard, making it highly secure and censorship resistance

Unlike fiat currencies, the crypto market allows you to transfer funds to your family and friends directly without having to wait for painstakingly slow and expensive cross-border banking transactions.

Why it’s called cryptocurrency

The term “Cryptocurrency” implies a currency that is based on cryptography techniques. Through asymmetric cryptography, cryptocurrencies establish a secure network for sending and receiving funds.

With cryptocurrencies, you have to work with public and private keys to store, send, and receive crypto tokens. A private key is like your password; you can use it to access your cryptocurrencies and spend or transfer them.

A public key, on the other hand, allows you to receive crypto assets from other people, however, you need your private key to unlock and access them.

“Not Your Keys, Not Your Coins”

You can only prove the ownership of your cryptocurrencies through your private key. The phrase “not your keys, not your coins” refers to this fact. If you’re keeping your cryptocurrencies in a software or hardware crypto wallet, you are the true owner of your private keys. This, however, comes with more responsibility for you as you’re acting as your own bank.

A centralized crypto exchange is a more convenient way, especially for beginners as they provide a user-friendly interface and manage your keys on your behalf. Yet, you should never use a centralized crypto exchange as a storage for your cryptocurrencies. You should only keep the amount you use for trading there and store your cryptocurrencies in a secure, hardware wallet.

Are Bitcoin and blockchain the same?

No, they are not. Bitcoin is a cryptocurrency that uses blockchain technology as the backbone of its system. Blockchain technology is not only limited to the financial market and many other industries such as healthcare, logistics and transportation, and marketing are using the technology to streamline their work.

Blockchain technology offers a public record for storing information in a distributed manner, meaning not one single entity is responsible for keeping the record updated. Various computers (nodes) around the globe hold their own copy of the record and keep it updated at all times to stay in sync with other members of the blockchain. This allows the members to be able to review new data based on the record they have to ensure its authenticity.

Bitcoin uses blockchain technology to verify transactions on its system. Each node has a copy of the Bitcoin ledger which it uses to verify the transaction, ensuring that the coins are being transferred by their true owners.

If you like to learn more about blockchain technology and its features, read our “What is Blockchain Technology?” article.

Where & How can you buy cryptocurrencies

Centralized crypto exchanges (CEX), like DIFX, are the most convenient option to buy cryptocurrencies. They allow you to use your credit or debit card to buy cryptocurrencies which will be transferred to your account instantly. Aside from CEXs, many digital banks also offer crypto purchase options to their users.

Decentralized Exchanges (DEXs) are another option you can go to. Through a decentralized exchange, you can buy crypto from another user and the whole process is controlled by software code, called a smart contract.

You can also buy your cryptocurrency of choice on Digital Financial Exchange (DIFX). On DIFX, you can buy various cryptocurrencies using your credit/debit card. You can also use the “Quick Buy” option on the platform or simply place a market order.