What Exactly is Cryptocurrency? - The Ultimate 2018 Beginners Guide

As 2018 gets into full swing, anyone who hasn’t heard of cryptocurrency like Bitcoin has likely spent much of 2017 in a medically induced coma. Over 2017, after all, more people looking to buy Bitcoin than ever before, sent the digital currency price surging to almost $20,000. Of course, knowing that digital currency like Bitcoin exists, isn’t the same as knowing how cryptocurrency actually works. This is why we’ve created a definitive 2018 cryptocurrency guide, targeted specifically at newcomers to the digital currency market.

What is Cryptocurrency?

Put simply, cryptocurrency is digital cash. This, however, is exactly where a lot of people start getting confused. After all, cash is already digital if you use a Visa or Mastercard or keep money in the bank, isn’t it?

While most people already transfer and use money digitally using ATM cards and bank transfers, any amount of money transacted will always correspond to a like for like balance of physical coins or printed bank notes.

Cryptocurrency, on the other hand, is different. This is because digital currency doesn’t correspond to physical real-world assets. Instead, when people buy Bitcoin at a Bitcoin exchange, they buy an impossible to duplicate encrypted key which represents a store of value.

How Does Digital Currency Actually Work?

When someone is in possession of a digital currency private key, they can use this to send corresponding (or smaller amounts) of the cryptocurrency which they own to other individuals and product and service providers. In fact, if you own 1 Bitcoin, you can use amounts as small as a hundredth of a Bitcoin (0.00000001 BTC) to pay for goods and services.

A second difference, however, rests with the fact that unlike with a bank or regular payment provider, digital currency transactions are processed and recorded by a decentralized software ledger. - This means that no third party needs to authorize payments. Much more importantly, only people who own a cryptocurrency private key can transact with the money they own.

How Does Digital Currency Have Value?

The media often likes to call cryptocurrency ‘air money.’ This is because many people believe that currency of any kind is only valid if it is controlled by central government. As we saw in places like Cyprus in 2013, however, central banks and governments often mandate confiscation of citizen wealth, in order to cover their own financial losses. This being the case, people often buy Bitcoin in order to store wealth in a way which offers better security than the average bank account.

Of course, digital currency doesn’t just have value because it is beyond government control. As well as this, purely software-based blockchains which process cryptocurrency transactions, remove the need for physical transaction infrastructure. Much more importantly, people who buy Bitcoin and similar forms of digital currency, buy tokens which have a set physical supply and (which in the case of Bitcoin) cost in excess of $1,000 to produce in the first place.

Is Investing in Digital Currency a Good Idea for 2018?

At present, digital currency is garnering significant attention from both everyday consumers and big financial institutions. What is more, many popular coins like Ripple XRP can still be bought relatively cheaply. This being the case, anyone who invests and saves for the future, would be wise to consider adding some form of cryptocurrency to their own investment portfolio.

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