Simplifying Cryptocurrency: meaning, uses, and benefits

STAFF WRITER | PROSPER ERAVWUVIEKE

The word cryptocurrency may seem popular literally but not so many people really understand what it means or the concept on which it operates, despite being prevalent in the media (online) and beyond.

Howbeit cryptocurrency "business" has been on the rise, but as many (among the few) who claim to understand cryptocurrency only have a substantial amount of knowledge on it. The rest just choose to be close-minded or reserved in keying into new terms. some others have completely given up on trying to understand it.

 

 

Meaning

With the rate at which our world is becoming digitized, more and more technologies are springing up to completely change the way we normally do things. New trends are constantly introduced, old technologies are been refined, you cannot but admit that truly the world has changed and is still changing. Cryptocurrency is one of such new trends. Crypto is a refinement to what we know as the normal means of payment and (money) exchange. As money is the approved legal tender for all transactions across the nations of the world, what we know as money is a printed note which we can see physically and carry from one place to another. These paper monies are classified as currencies and they vary from country to country with each country having a currency unique to them. But then, you cannot spend a currency that is peculiar to one nation in another nation, and this being sort of a limitation, as many people have transnational businesses that require funds transfer across various countries. Not just businesses, people also constantly travel across the world for various reasons such as vacation, tourism, education, conferences among others. So, there is a need for a decentralized payment system or exchange system that is acceptable for transactions anywhere in the world. This is the void that cryptocurrency has come to fill.

You may want to argue that we are already making payments across countries of the world after all, but at what cost do we make these payments = exuberant exchange and transaction fees.

Talk of a system that allows you to pay for goods and services in any part of the world without you needing to convert your money to the currency native to the country you're trying to buy from, then you talk of cryptocurrency.

So "What is Cryptocurrency?

In plain term, "cryptocurrency is a digital asset that can be used as a medium of exchange between individuals, businesses, countries, among other things". Crypto does not exist in physical form as with paper money and it is not controlled by a central authority. The term "coin" is used to refer to ownership of cryptocurrency and they are stored in a digital ledger or computer database known as "wallet", transactions between these ledgers or database are secured with strong cryptography

how cryptocurrency bitcoin works

I like you to see cryptocurrency as money. Crypto is just like your normal fiat currency, the difference being it is not printed in notes and it has no acceptability limitations, as the case with your normal fiat currency.

What this means is that cryptocurrency is a legal means of payment for goods or services, and it is acceptable in any part of the world.

The same cryptocurrency in Nigeria is the same crypto in America, UK or Ukraine.

It is not operated by any singular government in any country of the world, that's why there are no restrictions.

 

 

Types of Cryptocurrency

There are various kinds of cryptocurrency, but all built with the same principle, even as they serve the same purpose. The most popular is Bitcoin, albeit along with Bitcoin, there exist well over 6,000 other cryptocurrencies collectively known as Altcoins (Alternative variants of Bitcoin, or other cryptocurrencies).

Ten most popular Altcoins are:

  1. Ethereum
  2. Ripple
  3. Litecoin
  4. Tether
  5. Libra
  6. Monero
  7. Bitcoin cash
  8. Skrill
  9. EOS
  10. Bitcoin SV. 

 

Important points to note about Cryptocurrency

  • It is not controlled by a central authority, no particular government or central Bank of any country controls it.
  • Cryptocurrency is stored in a wallet and not in banks, and the owner of the wallet is responsible for managing the wallet.
  • Although it has not been legalized in all the countries if the world, but it is intended to be accepted across the globe.
  • Cryptocurrency is money and can be used as a means of exchange and payments for goods and services.
  • Cryptocurrency is not in physical form as with paper money. It is a digital asset or currency.

 

 

How does Cryptocurrency work?

Cryptocurrency uses the blockchain technology which serves as public financial transaction database. The transaction record entries of these financial transactions are secured with strong cryptography. As with paper money, cryptocurrency is minted, but in the case of cryptocurrency, the process of creating cryptocurrency is known as Mining and not Minting. Mining of cryptocurrency is done with specially created software and equipment and the proceeds from the process are known as coins and are stored in a wallet.

 To use cryptocurrency, you will need a wallet with which you will store your coins. There are various companies that provide free wallets for individuals to store their coins.

Some of those companies are Luno, Blockchain, Binance, Paxful, Quidax, Trust e.t.c.

To open a wallet, you have to visit their websites and then fill a form with which your wallet will be created. The process is a very fast and simple one, and in a few minutes, you could own a wallet.

The next step is to fund your wallet with a particular type of cryptocurrency (i.e Bitcoin, ethereum, ripple e.t.c). Note that a wallet can only hold a particular type of cryptocurrency, i.e a Bitcoin wallet can only house bitcoins and a ethereum wallet can only house ethereum.

To own multiple coins, you need to create multiple wallets.

Now, to fund your wallet, you need to convert your fiat currency (naira, USD, pounds, e.t.c) to the particular cryptocurrency you want. What this implies is that you have to exchange your Fiat currency with crypto. For instance, if you want to fund your wallet with bitcoin and you have naira, you need to exchange your naira with someone who has bitcoins. There are various sites where you can perform this exchange, a very good example is paxful. 

 

The need/uses of Cryptocurrency

As earlier established, cryptocurrency is money, and it can be used for anything paper money would normally be used for.

Cryptocurrency can be used for:

  1. Buying goods and services
  2. Online and offline payments
  3. Investment
  4. Trading, as in forex trade.
  5. Paying bills and utilities
  6. Low-cost money transfer
  7. Paying Tuition
  8. Donating to charity
  9. Paying rent
  10. shopping online and offline
  11. e.t.c.

The uses of crypto are the same as the uses of paper money. You can also build up a wealth portfolio with cryptocurrency, even as you can make legitimate money.

Here's a list of a couple of legit ways with which you can make money from cryptocurrency

  1. Cryptocurrency investment
  2. Cryptocurrency trading (buying and selling)
  3. Cryptocurrency mining

One major advantage of cryptocurrency is its nature to rapidly increase in value over a short period of time thereby leading to high return on investment (ROI), it is for this reason that most people that understand cryptocurrency prefer to invest/trade in it. Investing in cryptocurrency simply means buying the coins and keeping it in your wallet over a period of time with the hope that it will increase in value and then you will sell and make a profit.

If you put a certain amount of crypto in your wallet, you can check back in a few minutes or days to know the value of how far your investment has fared. In most cases, you tend to cash out more than you inputted; something that is hardly possible with the traditional paper money system. Even cash stocked in a bank account hardly increase in value, these days, they will only decrease due to bank charges and VAT.

Other advantages of Cryptocurrency include:

  1. Easier International trade
  2. It is not cumbersome to carry about
  3. Low cost of transactions
  4. More confidential transactions
  5. Individual ownership e.t.c

 

Cryptocurrency downsides

The benefits of cryptocurrency over Fiat currency are enormous, but as you well know, e be things -anything with advantage mostly also has its disadvantage(s).

As earlier stated that the value of cryptocurrency increases rapidly, but that is also how rapid the value decreases. For instance, you may put a certain amount of cryptocurrency in your wallet and when you check back minutes later, the value may have decreased greatly, meaning you have run at a loss.

Other disadvantages include:

  1. Cybersecurity issues.
  2. If you lose your coins, the transactions are not traceable.
  3. It is not legal in all countries
  4. It is a risky investment
  5. Transaction speed is still not as fast as fiat currency.

Amidst these disadvantages, cryptocurrency enthusiasts still prefer investing in crypto than in stocks, treasury bonds and fixed deposits because as you probably know, the higher the risk, the higher the ROI. Crypto currency also seems to be reaching a wider acceptance as more and more countries are legalizing it, even international e-commerce platforms are accepting it as a means of payment for their goods.

 

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Cryptocurrency should be encouraged because, with it, the world can adequately achieve a unified means of transacting, the cashless policy, safety means of hand-to-hand (in the spate of disease transmission as the case may be for covid19, even as we reduce the use of paper money and the investments that incur.

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