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From Banking to Bitcoin: What is Cryptocurrency?

Updated: May 27, 2023

Curious about cryptocurrency? Heard the buzz on the news or around the web about Bitcoin and other tokens rising in price? Wondering what all the hype is about? This guide is designed to be your ultimate easy-to-understand introduction to cryptocurrency.

If you've been hearing a lot about cryptocurrency, but were unsure of where to find good, easy-to-understand information on the topic, you've come to the right place.

This is The Crypto Gate's unofficial introduction to cryptocurrency. We hope you find this information useful.

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Cryptocurrency Doesn't Actually Look Like This...

Welcome, first-timer. This space can be intimidating. There's a lot of noise, a lot of hype, a lot of scams, and it's hard to keep track of what's valuable, and what isn't. Crypto can be overwhelming, but once you get into it, it's also a lot of fun with a lot of interesting communities that, while fundamentally different, all share their passion for this space.

So if you're ready to hang up your cash-maximalist hat, and dip your toe into the world of fast-moving technological development and highly volatile and speculative asset classes, you've come to the right place.

Intro to Crypto

The intention of this guide is to provide a high-level overview of cryptocurrency and blockchain tech, so you can walk away with a better understanding of the underlying technology, and maybe even spark your interest. In this guide, we provide a little background on cryptocurrency and how it came to be, we'll provide a high-level explanation of blockchain technology (the underlying tech of cryptocurrency) and discuss some of the current and potential future use cases of this tech, we'll explain how to buy your first crypto, and leave you with some closing thoughts about managing risk and exercising caution in the crypto space.

If you're ready to learn about crypto, we have some great content in store. You can use the anchor tags below to navigate this article.


From Banking to Bitcoin: A Brief History of Cryptocurrency

Cryptocurrency is a type of digital currency that uses cryptography for security and operates independently of a central bank. It was created as a response to the 2008 financial crisis, which was caused in part by the lack of trust in banks and other financial institutions.

The creation of Bitcoin in 2009 marked the first use of cryptocurrency. Bitcoin was created by an unknown person or group of people using the pseudonym Satoshi Nakamoto. The goal of Bitcoin was to establish a decentralized and secure form of currency that couldn't be controlled by any government or financial institution. This was achieved by using a technology called blockchain, which is a decentralized ledger that records all transactions across a network of computers.

Since the creation of Bitcoin, many other cryptocurrencies have been created, each with their own unique features and use cases. Some of the most popular cryptocurrencies include Ethereum, Solana, Dogecoin, Litecoin, and Cardano.

One of the key differences between cryptocurrency and traditional currency is that there is a limited supply of [most] cryptocurrency. For example, there will only ever be 21 million Bitcoins in existence. This is in contrast to traditional currency, where central banks can print more money as needed.

Another important aspect of cryptocurrency is that it is decentralized, meaning that it operates independently of a central authority. Transactions are processed by a network of computers, rather than by a central bank or financial institution. This makes it more secure and resistant to censorship and control.

Cryptocurrency has evolved over time, with new technologies and innovations being developed to improve its security, speed, and accessibility. For example, the use of decentralized exchanges has become more popular, allowing users to trade cryptocurrencies without having to rely on centralized exchanges that can be vulnerable to hacking and theft.

Overall, cryptocurrency is a relatively new and rapidly evolving technology that offers a decentralized and secure alternative to traditional currency.

While it is still in its early stages and there are many challenges to overcome, it has the potential to revolutionize the way we think about and use money.

What is a Blockchain?

A blockchain is essentially a digital ledger that records transactions in a secure and transparent way. It operates like a chain of blocks, where each block contains a record of several transactions. Once a block is filled with transactions, it is added to the end of the chain and becomes part of the permanent record.

The key feature of a blockchain that makes it secure is its decentralized nature. Unlike a traditional ledger that is maintained by a central authority, a blockchain is maintained by a network of computers all over the world. Each of these computers has a copy of the ledger, and every time a new block is added to the chain, every copy of the ledger is updated.

This decentralized nature of blockchains makes it nearly impossible for anyone to tamper with the records. For example, if someone tried to change a transaction in one copy of the ledger, it would not match the other copies of the ledger in the network. The network would then reject the change and maintain the original, accurate record.

In the case of cryptocurrency, the blockchain acts as a public ledger that records all transactions. This provides a secure and transparent record of all transactions, without the need for a central authority or intermediary. Because of this, cryptocurrency can be transferred directly from person to person, without the need for a bank or other financial institution to act as a middleman.

To sum it up, a blockchain provides a secure and transparent way of recording transactions. Its decentralized nature makes it difficult for anyone to tamper with the records, providing a level of security and trust that can't be achieved with traditional centralized ledger systems.

Beyond the Coins: Other Use Cases for Blockchain Technology

Cryptocurrency gives you domain over your own money and how you spend it. Most cryptocurrencies act as the native currency for their respective blockchains. While crypto is the golden child of blockchain for many reasons, there is a lot of utility in the underlying technology. Here are a few examples of different types of blockchain and crypto-adjacent tech, as well as some real-world use cases for crypto that extend beyond finance:

Smart contracts: A smart contract is a self-executing contract with the terms of the agreement written into code. Smart contracts are stored on a blockchain and can be used to automate the process of verifying and enforcing the terms of a contract. For example, a smart contract could be used to automate the process of paying out insurance claims or verifying the authenticity of digital assets without an arbiter or time-prohibitive proceedings.

Supply chain management: Blockchain technology can be used to track products as they move through a supply chain. By recording the movement of goods on a blockchain, it is possible to create a transparent and tamper-proof record of the entire supply chain, from raw materials to finished products. This can help to prevent fraud, counterfeiting, and other supply chain issues.

Identity management: Blockchain technology can be used to create decentralized, secure systems for managing identity. By storing identity information on a blockchain, it is possible to create a secure and tamper-proof record of an individual's identity, which can be used to verify their identity in a variety of contexts.

Decentralized applications (dApps): dApps are applications that run on a blockchain. Because they are decentralized, dApps are not controlled by any single entity and can be used to create a wide range of applications that are not tied to any particular platform. For example, a dApp could be used to create a decentralized social media platform, where users have complete control over their data and the platform is not controlled by any single company.

Energy management: Blockchain technology can be used to create decentralized systems for managing energy. By recording energy production and consumption on a blockchain, it is possible to create a transparent and tamper-proof record of energy use, which can be used to create more efficient and sustainable energy systems.

These are just a few examples of the many different types of blockchain and crypto-adjacent technology that exist, as well as some real-world use cases for crypto that extend beyond finance. As the technology continues to evolve, it's likely that we'll see many more innovative use cases emerge.

How to Get Started

There are several ways to get started in crypto, but as of the time of writing, the easiest way is to buy crypto from a reputable centralized exchange such as Coinbase or Binance. Both of these exchanges have been around for several years (decades in crypto time) and have weathered multiple storms while still maintaining a relatively high level of integrity. If you were to choose to acquire cryptocurrency from a centralized exchange, one of these two would be your least risky bet. Here's what you can do to get your first crypto from a centralized exchange;

Create an account: Go to the website of the exchange you want to use and create an account. You will need to provide some personal information, such as your name, email address, and a government-issued ID for verification.

Add funds: Once your account is set up and verified, you'll need to add funds to your account. You can usually do this by linking a bank account or credit card. Note that there may be fees associated with adding funds, so be sure to check the fees before you proceed.

Choose a cryptocurrency: Decide which cryptocurrency you want to purchase. Most exchanges offer a range of cryptocurrencies, including Bitcoin, Ethereum, and Litecoin, as well as some lesser-known altcoins.

Place an order: Once you've added funds to your account and selected a cryptocurrency, you can place an order. This usually involves specifying the amount of cryptocurrency you want to buy, as well as the price you're willing to pay. You can either place a market order, which means you'll buy the cryptocurrency at the current market price, or a limit order, which means you'll specify the price you want to pay and wait for the cryptocurrency to reach that price.

Wait for your order to be filled: Once you've placed your order, you'll need to wait for it to be filled. This usually only takes a few minutes, but it can sometimes take longer during periods of high volatility.

Withdraw your cryptocurrency: Once your order has been filled, you should see the cryptocurrency in your account. At this point, you can withdraw it to your personal wallet, or you can leave it in your exchange account (we generally recommend only keeping small amounts on exchange accounts regardless of exchange reputability. Remember this: not your keys, not your crypto). If you plan on withdrawing ETH, BNB, or an ERC-20 or BEP-20 coin, you might want to set up a Metamask wallet for yourself. We have a helpful write-up about how to do that here. We also have a helpful write-up about the Ethereum Virtual Machine that will tell you all about ERC-20 and other token standards here.


A Closing Note

Cryptocurrency has gotten simultaneously more user-friendly and more complex over the last several years, and navigating this space as a first-timer can be tricky and intimidating. If you're planning on 'investing,' never invest more than you're willing to lose. Crypto will very likely be the highest-risk investment class that you'll get into, and many projects can and will go to 0. Be cautious when speculating. There are also a lot of scammers and grifters in the space. If it sounds too good to be true, it probably is. Use your best common sense, keep your private keys safe, and most importantly: have fun!

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