Key Takeaways
Cryptocurrencies are digital currencies secured by cryptography. They are powered by blockchain technology, allowing users to send and receive assets via a decentralized, peer-to-peer (P2P) network.
Bitcoin, ETH, BNB, USDT, and SOL are some examples of the top cryptocurrencies by market capitalization.
Cryptocurrencies are accessed through crypto wallets or exchanges. Although people often say they are “stored” in wallets, the balances are actually recorded on a blockchain.
What Is a Cryptocurrency?
A cryptocurrency is a digital currency secured by cryptography. It’s a digital asset typically used as a medium of exchange. Cryptocurrencies can operate globally, 24/7, and independently of intermediaries such as banks and payment processors.
The decentralized nature of cryptocurrencies facilitates peer-to-peer (P2P) transactions directly between individuals. So, instead of physical wallets and bank accounts, people access their crypto through unique crypto wallets or crypto exchanges like Binance.
The first cryptocurrency
Bitcoin is the first and most popular cryptocurrency. It was created in 2009 by an individual or group under the pseudonym Satoshi Nakamoto. Since then, thousands of cryptocurrencies have emerged, each with unique characteristics and purposes.
Like traditional fiat currencies, cryptocurrencies can be used as a medium of exchange. However, the use cases for cryptocurrencies have expanded significantly over the years and now include a wide range of applications in various industries, such as decentralized finance (DeFi), artificial intelligence, gaming, governance, healthcare, digital collectibles, and many others.
How Does Cryptocurrency Work?
Blockchain network
Most cryptocurrencies are decentralized, meaning they use a distributed network of computers (nodes) to manage and record transactions in a public ledger known as blockchain.
So, whenever you send bitcoin to a friend, your transaction must be collectively verified and validated by the network nodes.
Each computer node has to maintain a local copy of the blockchain and update its copy every time new data is added to the ledger. Once validated and confirmed, cryptocurrency transactions are permanently recorded in the blockchain database.
The distributed architecture increases the network’s security because there is no single point of failure for malicious actors to exploit. If a node tries to validate invalid transactions or misbehaves, they are quickly expelled from the network.
Cryptography
Cryptocurrencies use cryptography to secure transactions, maintain data integrity, and control the creation of additional units. When you open your wallet and make a crypto transaction, you are essentially using your private key to generate a digital signature. The network then checks your signature and, if all is good, your transaction is added to a new block.
The blockchain is a chain of linked blocks, so you can think of a block as one of the many pages in the blockchain ledger. Each block contains, among other things, a unique list of crypto transactions.
What Makes Cryptocurrency Unique?
Cryptocurrencies have impacted various ecosystems by introducing innovative features that distinguish them from traditional protocols and currencies. Some of the unique aspects of cryptocurrencies include:
1. Decentralization
Cryptocurrencies allow users to have total control over their assets. Their decentralized architecture eliminates the need for a central authority. This allows for greater autonomy, as well as less vulnerability to manipulation or control by a single entity.
2. Transparency and immutability
Blockchain technology records all transactions on a public, transparent, and tamper-proof ledger. Once a transaction is added to the blockchain, it’s virtually impossible to alter or delete it.
3. Programmability
Many cryptocurrencies, such as ETH, are open-source and programmable, allowing developers to deploy smart contracts to create decentralized applications (DApps) and other innovative solutions on top of blockchains. And because permissionless blockchains are open-source, anyone can start deploying code on top of a blockchain to create their own DApps.
4. Borderless
Cryptocurrencies can be sent and received anywhere in the world, making them ideal for global transactions and remittances.
5. Limited supply
Many cryptocurrencies have a limited supply. For example, Bitcoin has a predictable issuance rate and a max supply of 21 million coins, contributing to its potential as a store of value. Limited supply helps prevent inflation and may lead to increased demand over time.
What Is Crypto Market Cap?
Short for cryptocurrency market capitalization, crypto market cap is a metric used to determine a cryptocurrency’s relative size and value. You can calculate it by multiplying a coin’s current price by the total number of coins in circulation:
Market Cap = Circulating Supply x Price
Crypto market cap is often used to rank cryptocurrencies, with a higher market cap generally indicating a more stable and widely accepted cryptocurrency. Conversely, a lower market cap usually signals a more speculative or volatile asset.
Do note, however, that this is just one of the many factors to consider when evaluating a cryptocurrency's potential. Several other factors, such as technology, team, tokenomics, and use cases, should also be considered when doing research.
Top 5 Cryptocurrencies by Market Cap
Among the thousands of cryptocurrencies, five notable examples include Bitcoin (BTC) and popular altcoins ETH, BNB, USDT, and SOL. As of November 2024, these are the top 5 cryptocurrencies by market capitalization.
Bitcoin (BTC)
Created by pseudonymous Satoshi Nakamoto, BTC is the first and most popular cryptocurrency. It’s widely used as a store of value and a medium of exchange.
Bitcoin uses a consensus mechanism called proof-of-work (PoW), where miners compete to validate transactions in return for block rewards. In addition, BTC’s limited supply of 21 million coins makes it relatively scarce and contributes to its reputation as “digital gold.”
Ether (ETH)
Ether (ETH) is the native coin of the Ethereum blockchain. Created by Vitalik Buterin, Ethereum powers a decentralized network where developers can build DApps using smart contracts.
Ethereum initially used proof-of-work but later transitioned to proof-of-stake (PoS) to increase efficiency and reduce energy consumption. This shift has allowed users to validate transactions and secure the network by staking their ETH rather than through nodes using computing power.
BNB
BNB was introduced in 2017 as an ERC-20 token on the Ethereum blockchain. In 2019, BNB migrated to its own blockchain and is now the native cryptocurrency of the BNB Chain ecosystem.
Similar to Ethereum, BNB Chain provides an environment for smart contracts and DApps, featuring lower transaction fees and faster processing times when compared to other blockchains.
BNB has many use cases, such as staking, paying transaction fees on the BNB Chain, paying trading fees on Binance, and participating in Launchpool token sales. In addition, the BNB Auto-Burn mechanism limits the supply of BNB and helps create scarcity.
Tether (USDT)
USDT is a USD-pegged stablecoin launched in 2014 by Tether Limited Inc. Stablecoins are cryptocurrencies designed to maintain a consistent value relative to a reserve asset, such as the US dollar or another fiat currency.
In the case of USDT, each token is backed by an equivalent amount of assets held in the company's reserves. Stablecoins like USDT eliminate the extra costs and delays associated with converting between crypto and fiat currencies.
Solana (SOL)
SOL is the native cryptocurrency of the Solana blockchain. Solana is a third-generation PoS blockchain that was launched in 2020. It has implemented many unique innovations to offer high throughput, fast transactions, and low fees.
How to Safely Invest in Crypto
Like other financial assets, investing in cryptocurrency can be risky and may result in financial loss. Here are six essential tips to make buying and selling cryptocurrency safer:
1. DYOR
The acronym DYOR stands for “do your own research”. It's important to understand the basics of blockchain technology — such as the different types of cryptocurrencies and market dynamics — before investing in any cryptocurrency.
Books, blogs, podcasts, and forums are all good places to start. You should also learn about the projects, teams, and technology behind different cryptocurrencies to make informed decisions.
2. Watch out for scams
The crypto space is full of innovation and interesting products, but unfortunately, it’s also plagued by all sorts of crypto scams. Don’t trust strangers online and be wary of pyramid and ponzi schemes.
If you need help, reach out to the official customer support channels. Watch out for phishing, multisig, airdrop, and giveaway scams. Verify social media accounts carefully to avoid falling for spoofed (fake) profiles. Consider using a reputable password manager, and make sure to keep your private keys and seed phrases offline. You may also split your seed phrase up for added security.
3. Start small
The crypto market can be volatile and unpredictable, especially when it comes to less popular coins. It’s safer and wiser to start with small investments that won’t hurt your pocket in case of losses. This approach allows you to experience and develop a better understanding of market trends without risking too much.
4. Stay informed
The cryptocurrency landscape evolves very fast, so it’s important to keep up to date with news, technological advancements, and regulatory updates. Make sure you understand the projects well before taking risks.
5. Choose a reputable crypto exchange
Choosing a well-known and secure cryptocurrency exchange for your crypto investments should be your top priority. If Binance is not available in your region, start by comparing the different options regarding trading volume, fees, customer support, security, interface, and available cryptocurrencies.
6. Practice risk management
Before investing in any cryptocurrency, it's essential to implement some risk management techniques. For example, investing what you can afford to lose and setting stop-loss orders to limit potential losses can make a big difference.
What Is a Crypto Whitepaper?
A crypto whitepaper is a document that explains the details and technical specifications of a blockchain project. It typically includes information such as the project's goals, how it works, the technology behind it, the team involved, the tokenomics of the project, and the roadmap for development and implementation.
Cryptocurrency whitepapers serve as a comprehensive guide to the project, explaining its purpose and potential benefits. Investors and community members often review and scrutinize whitepapers to evaluate the legitimacy and potential of a cryptocurrency project before investing.
However, there are no standards or regulations for whitepapers, and they could be misleading or inaccurate. Crypto projects can write anything they want in their whitepapers. As such, the responsibility to verify the truthfulness of the claims in the document falls on the users.
Closing Thoughts
Cryptocurrency has introduced a new way to think about money and financial transactions. Some believe it could eventually replace traditional financial systems, while others see it as a complement to existing systems. Still, cryptocurrencies have already impacted finance and technology, and their influence will likely continue to grow.
Further Reading
Disclaimer: In compliance with MiCA requirements, unauthorized stablecoins are subject to certain restrictions for EEA users. For more information, please click here.
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