What Is Cryptocurrency And Should I Invest In It? - What Is Cryptocurrency

Cryptocurrency. It’s the hot buzzword of the investing world these days. But what is cryptocurrency really? Ever heard of Bitcoin, Dogecoin, Litecoin, XRP or Ethereum? Nope—they aren’t embarrassing rock band names from the ’90s. They’re actually types of cryptocurrencies (aka digital money). And they’re trending everywhere you look.

But here’s the million-dollar (or million-bitcoin?) question: Should you invest in cryptocurrency? Despite what every loudmouth on the internet yells at you from their digital soapbox, buying cryptocurrency isn’t a safe bet for your investing future.

But we’ll get more into that in a minute. Let’s unpack what in the world crypto is first.

What Is Cryptocurrency? 

Cryptocurrencies are digital assets people use as investments and for online purchases. You exchange real currency, like dollars, to buy “coins” or “tokens” of a certain kind of cryptocurrency.

Think of it this way: Cryptocurrency is kind of like swapping out your money in a new country. A Benjamin can buy you a nice dinner in the States, but if you want to enjoy fine dining in Italy, you’ll need some euros. We value dollars and euros because we know we can purchase goods or services with them. The same goes for cryptocurrency. You exchange your money for crypto and use it just like real money (at places that accept it as a type of payment).

So where the heck do we get the word cryptocurrency from, anyway? We’re glad you asked. It comes from the word cryptography—meaning the art of writing or solving codes. Sounds like the setup of an Indiana Jones movie, right? Each coin of cryptocurrency is a unique line of code. And cryptocurrencies can’t be copied, which makes them easy to track and identify as they’re traded.

You’ve probably heard of people making (or losing!) hundreds of thousands of dollars by investing in cryptocurrency. It feels like a modern-day gold rush all of a sudden.

How Does Cryptocurrency Work?

Cryptocurrency is exchanged person-to-person on the Web without a middleman, like a bank or government. It’s like the Wild West of the digital world—but there’s no marshal to uphold the law.

Here’s what we mean: Have you ever hired a kid in your neighborhood to mow your lawn or watch your dog while you were out of town? Chances are, you paid them in cash. You didn’t need to go to the bank to make an official transaction.

That’s what it’s like to exchange cryptocurrencies. They’re decentralized—which means no government or bank controls how they’re made, what their value is, or how they’re exchanged. Because of that, cryptocurrencies are worth whatever people are willing to pay or exchange for them. Yep, it’s pretty wild.

With us so far? Okay, good. Because we’re about to get into the tech weeds even more.

How Does Someone Earn Cryptocurrency?

There are basically two ways someone can get their hands on cryptocurrency: They can buy it, or they can “mine” for it. Wait, what does that even mean? (Don’t worry, you won’t need to raid your garage for a shovel or pickaxe.)

Cryptocurrencies are based on something called blockchain technology. A blockchain is like a really long receipt that keeps growing with each exchange of crypto. It’s a public record of all the transactions that have ever happened with a given type of cryptocurrency. Yes, it sounds like it’s straight out of The Matrix. Just think of it like a ledger that shows the history of that piece of currency.

In the crypto world, mining happens when people use their computers to solve super complicated math problems that make sure new crypto transactions are correct. Then, those transactions get added to the blockchain (aka the receipt). As a reward for making sure a purchase made with crypto is legit, these people mining are then paid in cryptocurrency.

How Do You Store Your Cryptocurrency?

You store your cryptocurrency in something called a digital wallet—usually in an app or through the vendor where you purchase your coins. Your wallet gives you a private key—a unique code that you enter in order to digitally sign off on purchases. It’s mathematical proof that the exchange was legit.

What Types of Cryptocurrencies Are There?

Bitcoin is the top dog that everyone knows about, but it’s not the only kind of cryptocurrency out there. There’s Litecoin, Polkadot, Chainlink, Mooncoin . . . and, oh, just about 10,000 other kinds of weirdly named coins coming up the ranks. Let’s hit on the top contenders:

Bitcoin 

Yeah, it’s the household name that most people think of when you talk about cryptocurrency. That’s because it was the first cryptocurrency, and it’s been around for a while now. Bitcoin was created in 2009 by an unknown person who goes by the alias Satoshi Nakamoto—whoever that is.1 And that big secret is part of its underground feel that people like. But there’s no denying the fact that everything anonymous is super shady.

Ethereum

This one is the next most popular cryptocurrency after Bitcoin. And even though Ethereum is like Bitcoin with its crypto coins (called Ether), it’s a little different too. While Bitcoin was created to become an alternative option to traditional currencies like the dollar, Ethereum has evolved into a network that can be used to do old things (like buying art) in new ways.

Dogecoin 

Dogecoin (pronounced “dohj-coin”) started as a joke back in 2013 and is now the hottest thing to invest in. At the time, there was a meme going around of a Shiba Inu (that’s a kind of dog) who was given the nickname “Doge.” The creators of Dogecoin named their cryptocurrency after the Doge meme, it became their mascot, and the rest is internet history. Oh, we’re serious. You can’t make this stuff up.

What Can You Buy With Cryptocurrency? 

At this point, most people still see cryptocurrencies as an investment. But cryptocurrency is quickly gaining speed and becoming more widely accepted as currency. And using crypto in this way could become even more popular as these cryptocurrencies keep gaining trust.

Some major retailers—like Whole Foods, Nordstrom, Etsy, Expedia and PayPal—are now letting people pay using crypto. And of course, any two people who value the tokens can exchange them for goods or services with each other.

You could also buy those NFTs we were just talking about with cryptocurrency, if owning the world’s first digital perfume or digital toilet paper with flowers is your thing. Yes, those are “real”—but that’s a story for another day.