Cryptocurrency Easily Explained In 4 Minutes
What is cryptocurrency?
I’m sure you’ve heard about cryptocurrency. You must’ve also heard some buzz words like decentralized, cryptography, or even digital currency. I know it can be confusing if you’re new to it. So, let me break it way down.
Think of the money you store in the bank. You don’t see it or touch it yet you can spend it. You can also keep track of it on your bank app or by simply dialing your bank’s USSD code and if you ever decide to withdraw it, your ATM card lets you do that.
Cryptocurrency works in a similar way. The money in the bank represents the crypto, your bank account represents your crypto wallet and the bank represents the blockchain. Should you need to withdraw your funds, your wallet address works in the same way as an ATM card.
Simply put, cryptocurrency is virtual money stored in a wallet on the blockchain. All the confusing talk about cryptography and decentralization comes from crypto’s most obvious selling point which I explain next.
Your bank may impose sanctions on your account and can easily trace the money that comes in and goes out but this is not so with the blockchain. The blockchain is maintained by everyone who uses it rather than a single institution or group of people.
This is why it is decentralized; power and authority don’t belong to one group of people, it belongs to all. The immediate implication is that funds can be acquired and spent without fear of restriction, confiscation, or sanctions.
How do I get cryptocurrency?
To get a cryptocurrency, you’ll need a wallet. Think of a wallet like your bank’s mobile application. A wallet is like storage space on an online app that can hold your cryptocurrency. There are many such online apps today Iike Binance, Coinbase Exchange, FTX3.
These apps are commonly called crypto exchanges. This is because they act as a marketplace, allowing people to buy and sell cryptocurrencies and exchange regular money for crypto. FYI, regular money is called fiat in crypto speak.
To recap, when you sign up on a cryptocurrency exchange like Binance, you’ll be given a wallet. You can exchange your Nigerian naira for any cryptocurrency of your choice.
Like with everything in the world, cryptocurrency has selling points as well as pain points. According to coinmarket cap, there are over 14,000 cryptocurrencies in existence today, it would serve you well to understand their pros & cons and how best to leverage them.
Related: Cryptocurrency Mining: 14-year-old Makes N77 Million From Crypto
Advantages of cryptocurrency
A major benefit of cryptocurrency is that it is borderless and easily exchanged. It can be used to pay for goods or services in any country thanks to the growing list of merchants that accept it as payment. It also has little to no transfer fees this helps you liquidate your funds free of hassle.
Another interesting benefit of cryptocurrency is that it operates outside the watchful eyes of a central authority. Funds in your wallet cannot be taxed and or frozen as is common with fiat. This allows you a measure of freedom, control, and independence.
Another benefit that I find highly motivating is that cryptocurrency has a high return potential. With the growing user base, coins like Bitcoin are able to reach (and surpass) their all-time highs.
Disadvantages of cryptocurrency
Despite its popular demand, the cryptocurrency scene is highly volatile. Prices can fluctuate on any given day. Take Bitcoin, for example, it was priced at $975.70 in March 2017 but it spiked to $20,089 in December. In April 2021, Bitcoin reached an all-time high of $64,000.
A call for caution with cryptocurrency is its finality. What I mean is, cryptocurrency transactions are irreversible. Nothing can be done if a wrong amount was sent or (worse) if it was sent to the wrong person.
Finally, although the use of cryptocurrency has spread across all sectors, it is not nearly as popular as regular debit/credit cards. This puts a limit on the places you can spend your money.
