A cryptocurrency is just like a digital form of cash. You can use it to pay friends for your share of the bar tab, buy that new pair of socks you've been eyeing up, or book flights and hotels for your next holiday. Because cryptocurrency is digital, it can also be sent to friends and family anywhere in the world.
Just like PayPal or bank transfers, right? Well, not really. It's way more interesting!
You see, traditional online payment gateways are owned by organizations. They hold your money for you, and you need to ask them to transfer it on your behalf when you want to spend it.
In cryptocurrencies, there isn't an organization. You, your friends, and thousands of others can act as your own banks by running free software. Your computer connects with other people's computers, meaning you communicate directly – no middlemen required!
To use cryptocurrency, you don't need to sign up for a website with an email address and password. You can download a wide variety of apps onto your smartphone to begin sending and receiving within minutes.
Why do they call it cryptocurrency?
The name cryptocurrency is a combination of cryptography and currency. With cryptography, we use advanced math to secure our funds, making sure that nobody else can spend them.
There's no need to understand all this – applications you use will do all the heavy lifting. You won't even know what's going on under the hood.
If you're interested in that kind of thing, though, we've got a few articles for you:
- What is Public-Key Cryptography?
- History of Cryptography
- Symmetric vs. Asymmetric Encryption
- What is a Digital Signature?
So, this magical internet money isn't owned by anyone and uses cryptography to secure the system. But you've already got apps for paying people – why should you care?
No one can stop you from using cryptocurrency. Centralized payment services, on the other hand, can freeze accounts or prevent transactions from being made.
Because of the way the network is designed, it's virtually impossible for hackers or other attackers to shut it down.
A cheap and fast payment method
When you make a transaction to someone at the other side of the world, your money can be with them within seconds – at a fraction of the cost of an international wire transfer.
What about that Bitcoin thing your friend or family member keeps talking about? That's the original cryptocurrency, and, to date, the most popular.
Who invented Bitcoin?
Amazingly, nobody knows who invented Bitcoin. We only know them by their screen name - Satoshi Nakamoto. Satoshi could be a single person, a group of programmers, or if you believe some of the weirder theories, a time-traveling alien or secret government team.
Satoshi published a 9-page document in 2008, detailing how the Bitcoin system worked. Months later, in 2009, the software itself was released.
Bitcoin provided the foundation for many other cryptocurrencies. Some were based on the same software, while others took a very different approach. Ok, but what's the difference between all the cryptocurrencies?
To even make a list of all the different cryptocurrencies would take us weeks. Some are faster than others, some are more private, some are more secure, and some are more programmable.
There's a common saying in the cryptocurrency space: Do Your Own Research (or DYOR). We're not saying that to be rude, we promise. It just means that you shouldn't take information from a single source as the truth.
Before investing your money into a particular project, make sure you do your due diligence.
Cryptocurrencies aren't all the same!
If you're interested in learning about some of the different coins and tokens, we've compiled a list of guides on Binance Academy:
- What Is Bitcoin? (the king of cryptocurrencies)
- What Is Ethereum? (the distributed computer)
- What Is BNB? (the original exchange coin)
- A Beginner's Guide to Monero (for the privacy aficionados)
In the next section, we're going to talk about the technology that the vast majority of digital currencies are based on, known as blockchain.
Source: Binance Academy.