As with any new skill or interest, it’s important that you first learn how to walk before attempting to run. In fact, with crypto, it’s perhaps even more important than most, given this is still quite a volatile space, which means lots of opportunities but also lots of risks.
With that in mind, I’ve put together a comprehensive guide on all things cryptocurrency and today we’ll get started but do so at the ‘ground floor’. There’s a lot of jargon to get to grips with, and so in this section of our report we’ll be defining those key terms for you.
As with all of our content, if there’s anything you’re unsure of or would like to explore further, you can drop us a line at hello@marketprospectors.com and one of our experts will be more than happy to help.
So, without further ado, let’s get stuck into part one of our Crypto Jargon Buster…
What is cryptocurrency?
A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit. Transactions are made using a peer-to-peer system, giving the crypto space the ability to operate without the backing of an authority, such as a central bank or government.
This fundamentally differentiates cryptos from traditional currencies such as GBP or USD. Instead of government guarantees, the way cryptocurrencies work is underpinned by blockchain technology which means rather than existing as a physical stack of notes or coins in your wallet, cryptocurrencies are purely digital. You can think of them as virtual tokens, where the value is determined by market forces generated by the people who want to buy or sell them.
You’ll often hear people talk about the “market cap” of cryptos. This stands for market capitalisation, which sounds complicated but it’s basically just the total value of a given crypto found by multiplying the number of tokens it has has by the amount each of them are worth (e.g. if Bitcoin currently has 18 million tokens in circulation and each of them is worth around $38,0000, you’re looking at a market cap of more than $700 billion).
Some cryptocurrencies that have a limited supply available can be thought of as a kind of digital version of gold, where their “scarcity” makes them appealing as a store of value and they’re subject to the laws of supply and demand. This is the main appeal of many cryptocurrencies; that they are able to be traded on exchanges similar to the way stock market investors buy and sell shares and other commodities.
Cryptocurrencies can be bought with traditional cash such as pound sterling and can then be used themselves to buy an expanding array of day-to-day goods and services. Coins have the same value in each country, making person-to-person transfers around the world easier, while negating the issue of exchange rates.
It’s also possible to use cryptos to make purchases, for example a number of online stores such as Etsy and the Xbox store accept Bitcoin as payment. PayPal has also announced a service allowing its customers to buy, hold and sell cryptos through their accounts.
What is blockchain?
To explain what blockchain technology is, tech gurus Don and Alex Tapscott describe it best as:
“…an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually anything of value”.
This technology is essentially a sequence of ‘blocks’ or groups of transactions that are ‘chained’ together and distributed among users. When using blockchain technology, all transactions can be recorded, persisted and protected.
There are two main functions of blockchain technology, with the initial function being the creation of economic transactions for the purpose of recording cryptocurrency transactions. By extending to other transactions (the second function), the opportunities for blockchain increase exponentially.
What sets blockchain apart from every online transactional model is that it has no centralised database. Instead, the blockchain ledger is decentralised, meaning there are copies of it on many different machines in many different places. This means that hacking into a blockchain block of transactions (if hackers could even figure out how) is futile because any edits they made wouldn’t match up with the copies of the blockchain stored in other places.
What is Bitcoin?
Bitcoin was the first decentralised cryptocurrency to use Blockchain technology and was created in 2009 by a mysterious software developer known as Satoshi Nakamoto (known as because this is actually a pseudonym and nobody knows who who/she actually is!). Their goal was to create a private currency outside the control of any government, based not on trust in a centralised institution but on decentralised verifiable transactions.
Today, Bitcoin serves as the “gold standard” in the cryptocurrency world. This statement from Satoshi helps us understand the ideology behind Bitcoin:
“The root problem with conventional currencies is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.”
Although Bitcoin is not a physical object and it exists only in a virtual world as programmable code, people still like to picture these things, hence the prevailing image of a ‘golden bitcoin’.
That’s all for now but, if you click here, you can get parts two, three and the rest of my crypto guide today.
Plus, it won’t cost you a penny!
