Is a blockchain the same thing as a cryptocurrency?
No. Cryptocurrencies exist because of a blockchain, which is their underlying technology, but they are not the same thing. For example, there can be blockchains without cryptocurrencies, although some experts argue about the need for them. There can also be cryptocurrencies that do not use a blockchain, but instead use another form of Decentralized Ledger Technology (DLT).
The blockchain’s security and decentralisation-oriented approach make it an ideal network to host consensus algorithms, which issue rewards to users for performing set tasks. For example, the Bitcoin network rewards users for progressively protecting and securing the Bitcoin network through encryption.
Are all cryptocurrencies Bitcoins?
Since Bitcoin was the first-ever cryptocurrency, both terms started being used interchangeably. However, as cryptocurrency grew in popularity (and diversified), so did the importance of separating both notions. Although it is still technically correct to use the term “bitcoins” to refer to other tokens and coins, it is advised for users to only use the word “Bitcoin” to refer to that particular coin. Users can refer to other currencies using words such as “crypto”, “cryptos”, “tokens”, “coins”, or by their official names.
What are the benefits of cryptocurrencies?
Cryptocurrencies are useful for both storing and transacting with value, such as other assets like fiat currency or even precious metals. The essential quality of a reliable cryptocurrency, however, is the possibility to transact seamlessly across borders, with low to no fees, in large or incredibly small amounts, at all times, anywhere. This type of currency is also useful for users living in inflation-affected nations as a store of value, and as a minimalistic approach to money since it takes zero physical space to store.
What gives cryptocurrencies their value? Why does it change so often?
Not every cryptocurrency’s value changes drastically, or at all. There are currencies backed by assets and therefore designed so that their value stays pegged to the asset’s value, whether these are natural resources, euros, dollars, or company stock, to mention a few. These cryptocurrencies are often known as ‘stablecoins’ or ‘asset-backed’ tokens.
Other currencies (like Bitcoin) are used to both store and transact with value and are offered and traded in the free market. As such, the free market determines their value based on their perceived utility. Cryptocurrencies are also used as a vehicle for financial speculation (like stock trading) which can cause their value to vary based on news, manipulation, or trading strategies.
Is there a way to turn cryptocurrencies into US dollars, Euros, or other ‘traditional’ currencies?
Yes. Many cryptocurrency exchanges allow users to purchase cryptocurrencies using euros, dollars, etc. Users can also use these intermediaries to exchange cryptos for “fiat” money.
Where are cryptocurrencies stored?
All cryptocurrencies exist uniquely within a DLT at all times, and cannot be sent elsewhere. What users often refer to as ‘cryptos’ are the keys to access and transact with cryptocurrencies on the DLT. These keys can be stored in a ‘cold storage’ method, such as a phone, computer, disk drive, or ‘Ledger’; or even in handwriting or printed on a paper, referred to as ‘wallet’.
Are cryptocurrencies a safe way to store money?
Some cryptocurrencies are meant to be used for speculation and trading, others as a store of value, and others for transactions. The utility of cryptocurrencies to store value, therefore, depends on every unique user’s goals, risk tolerance, and other factors such as the fees they’re willing to pay to acquire cryptocurrency, need for liquidity, etc.
Why are cryptocurrencies not often used for transactions on a Business-to-Consumer basis?
When we talk about cryptocurrency adoption, we refer to how many people use crypto to perform everyday operations. Since this number relays purely on consumers’ hands, there are a few factors that determine how fast and how much this number grows:
- The availability of information on how to use cryptocurrency, issued by trustworthy sources.
- The reputation of the cryptocurrency industry and perceived security of using cryptos for payments.
- The overall cryptocurrency/financial education and technology savviness of populations.
- The availability of user-friendly platforms for users to transact and teach others how to issue and receive payments in cryptocurrency.
- The fluctuations in the cryptocurrency market and perceived stability.
- The speed in which transactions are performed on the blockchain, often measured in transactions per second (tps).
- Internet and technology availability.
While all of the factors mentioned above are important for cryptocurrency adoption, the speed of the network remains the main obstacle for spreading use.
Blockchains and DLTs are highly encrypted for money to stay safe, which causes slow processing speed and a low tps number, causing vendors to feel uneasy receiving payments in cryptocurrency. The crypto community understands this number to be very significant for the future of digital money and continuously looks for new ways to accelerate technology up to the point where it is possible to run seamless payment platforms.
Can cryptocurrencies be considered an investment?
It is certainly possible to invest in cryptocurrencies. Many people worldwide do so, as they believe the use cases for some of them can bring revolutionary advances to many industries, along with increased demand that boosts their prices. As such, many models of investment involve cryptocurrencies, such as ICOs, STOs, IEOs, and others. Companies, especially those in these crowdfunding rounds, often offer facilities for investors purchasing their cryptocurrencies, such as bonuses that guarantee returns at the time of issuing.
We urge users looking into investing in cryptocurrencies to at all times conduct their own research. We also remind you that cryptocurrencies are largely unregulated and that, although they present the potential for high earnings, they are a high-risk investment. Users that do not fully understand cryptocurrency are encouraged to learn more and educate themselves before taking any financial risks.
The leading DeFi applications are, in order, Maker, Compound, and Synthetix. Estimates indicate that Maker currently holds over 60% market dominance. Of the total $1.18 Billion in value locked in DeFi, around 90% is locked in lending apps. DeFi is still subject to the crypto market’s volatility.
What is cryptocurrency trading?
Since many cryptocurrencies trade in the free market, this opens the possibility for speculation, as it occurs with stocks. Traders intend to read and predict the markets to make a profit buying currencies at a low price and selling them at a higher one. This strategy is much more hands-on than investing and requires more time and involves uncertainty.
However, since cryptocurrency exchanges make it extremely accessible for users to exchange currencies within their platform, and because of the speculative and volatile nature of these assets, many users actively trade. As with investing, we advise uneducated investors to stay away from trading before they seek to learn more about the technology and industries behind cryptocurrency to avoid losses and unnecessary risk.