When you are new to the world of crypto, it can appear to be incredibly confusing. And let’s be clear, there are plenty of people who are actively involved with cryptocurrencies that aren’t 100 percent sure about how they actually work. With this in mind, we thought we would put together a crypto cheat sheet, to ensure you know everything there is to know – let’s get started right away.
The importance of the Blockchain
Without the Blockchain, cryptocurrencies would look very different. It’s the Blockchain that underpins everything, and your understanding of cryptocurrencies demands an understanding of the Blockchain. So, what is it?
A Blockchain is, in simple terms, a ledger that logs every single transaction on any given network. It’s secure, can be used globally, and is updated regularly and automatically as soon as a cryptocurrency transaction takes place.
The great thing about the Blockchain is that it is set in stone – you can’t mess with it and it is – currently – impossible to hack, tamper with, or change. Blockchain technology is still in its infancy, and it has the potential to disrupt many different industries- not just currency markets.
All about crypto
Next, let’s explore a little more about cryptocurrencies. These digital currencies are actually built by the Blockchain, and there are thousands of them currently in operation around the world. Many people think that cryptocurrencies such as Bitcoin will play an important role in the future of money, although right now, the vast majority of cryptos are not actually classed as ‘currencies.’
Many of the most popular currencies are described as coins or tokens, which we will go into right now
Crypto coins and tokens
Cryptocurrency coins are essentially a store of value and a unit of account – much like your pound, dollar, or yen. There are different types of coin, of course, and their primary purpose is to be used in exchanges, just like normal money.
Cryptocurrency tokens are similar, but there is a key difference. While tokens can be used as a way of paying someone, there is a little more to them. For example, cryptocurrency token holders get more value from them than coins, as they can be used for all kinds of things. Some token holders will be able to vote on changes to a business, or particular business decisions. They might earn dividend payments, too, or receive or be eligible for access to services and discounts.
The importance of ICO
Finally, it’s important to understand the role of Initial Coin Offerings – or ICO – in cryptocurrencies. This is the most common method used by cryptocurrency companies to raise funds for their businesses, and it’s usually done via crowdfunding.
Once a company opens an ICO, they issue coins to investors, in a similar way that a company doing an IPO offers shares. However, there is a key difference. ICOs are not regulated, and there are currently no legal requirements covering them. It means that there is a big risk of getting involved in an ICO without doing proper due diligence.
We hope this guide helps you understand the basics of cryptocurrencies!
Now you understand Cryptocurrency, why not visit our Cryptopedia page for A Glossary of all the Cryptocurrency Terms.