Cryptocurrency (Digital Currency) Basics

Investing in Cryptocurrency (aka Digital Currency) is a new and exciting market with a lot of confusion surrounding it. Many people know of Bitcoin and Ethereum as these are the two most popular coins in the market. With that said, there are many to choose from, especially those known as DeFi coins or Decentralized Finance Coins. Let’s begin our dive into digital currency basics.

So what is digital currency? 

Digital currency is online money or internet money used for the exchange of goods and services. These goods as services can range from consumer durables, home products, online artwork (which we will explore later), and real estate, both physical and online. Digital currencies are built on a Distributed Ledger Technology (DLT) known as the BlockChain utilizing cryptography to ensure the security of a user’s information and their transactions. 

What is the BlockChain?

Many people don’t know or understand the meaning of “blockchain.” It’s the underlying technology that all cryptocurrencies operate on. Better described as a database shared among the peer-to-peer network of computers. Information is stored in groups called “Blocks” that link together once one block is full of data. When these “blocks” link together, it creates a chain where the name blockchain originates. The theory of this technology has been around for decades but only started seeing actual use when Bitcoin was created in 2009. Blockchains are nearly impossible to hack and are very difficult to cheat the system. 

What is the difference between a coin and a token?

A coin is a digital currency that has its own BlockChain. Primary examples of these are Bitcoin, Ethereum, Ripple, and others.

A token is a digital currency built on another BlockChain. These tokens are created for a specific project and sold during an Initial Coin Offering (ICO), similar to Initial Public Offerings in the stock market. 

How are digital currencies held?

Digital currencies are held in a wallet, similar to a dollar bill in your personal wallet, except held and stored online. People can hold their assets in either a hot wallet, which is a wallet connected to the internet held on digital asset exchange like Gemini, or a cold wallet which is stored offline, similar to owning physical gold, silver, and coins in your mattress.

Over 10,000 digital currencies utilize blockchain technology, but digital currencies are not the only applications anymore. Many corporations have started incorporating blockchain technology into their system to store data -companies like Walmart, IBM, Amazon, and many more.[1] We are very optimistic about the future of digital assets. Please review our next piece discussing the most popular digital currencies available today.

– Alexander Kaminer & Timothy Nihill    

[1] https://www.investopedia.com/terms/b/blockchain.asp#toc-how-are-blockchains-used