Do you have any cash in your wallet? If you do, you’ve probably been using that currency for a while, so you understand it. You know what the amount you’re holding is worth and what you can buy. You even have a good idea of how to earn more of it.

 

On the other hand, cryptocurrency might be an entirely new world to you. You’ve heard being mentioned on the news and causing turmoil in the financial world, yet you have no idea what is being spoken about. Sometimes you may even wonder whether you’re losing out on a goldmine.

Follow this guide to understand the basics of cryptocurrency if you’re confused about it:

 

 

What is a cryptocurrency?

Cryptocurrency is a digital currency. It exists virtually online, and you can’t have cryptocurrency in your physical wallet. The value of this digital currency is associated with a digital coin.

 

• • Just as there are many physical currencies, the dollar, Euro, Yen, Francs, and others, there are also thousands of digital coins. Most often, you hear of Bitcoin, Ethereum, Tether, and Binance coins.

 

• • Even though “crypto” comes from the word “encryption” and refers to most forms of online security, “crypto” has become a way of referring to online currencies. When you buy crypto, you purchase ownership of a token.

 

• • It then exists on the “blockchain.” You can buy items with this token, trade it for another token, or move your token to another digital wallet.

 

 

What is a blockchain?

It is a record of all the transactions of the cryptocurrency token it’s associated with, like a digital ledger. If you keep track of all your transactions, you could compare that to how a blockchain works. If you own a token and you buy or make a trade with that coin, a record is made.

 

• • The record of this transaction can never be erased from the blockchain. It is encrypted. The permanent record of transactions on the blockchain makes it secure and safe from attempts to gain control of it.

 

• • Physical currencies are often kept in the bank. It’s where you deposit or withdraw sums. Where is the blockchain kept? It is not stored in a central location. It is decentralized.

 

• • So unlike physical currencies, which a central government controls, cryptocurrencies are not controlled by a central government. Digital coins are designed not to be easily manipulated by the government or other corporations.

 

 

What is a digital wallet?

The blockchain is where your cryptocurrency is kept, like your digital bank. Your wallet is different. You download that on your computer and use it to track how much crypto you own.

 

• Every other kind of cryptocurrency comes with its wallet, so you need to get the wallet to match the currency you’ve purchased or want to buy. If you wish to purchase a coin, you go to the site and download the wallet for that currency.

 

• There are two versions of a wallet that you can get: the light and the regular version. The regular wallet contains every single transaction that has ever taken place on the blockchain, so it could take quite a long time, sometimes days, to download and sync to the network.

 

• When you make a transaction on the network, it affects every computer holding that wallet. Light wallets are not as detailed. You can store information about personal transactions on your light wallet. And it doesn’t download the entire record of transactions, so it’s faster.

 

 

What does it mean to “mine” crypto?

A term frequently used in the crypto industry is “mining.” We know what mining means in the typical sense. A miner digs as deep as they can go into the earth to find precious gems. 

 

• Computers mining for cryptocurrency are made to solve complex math problems. As the currency gets older, these problems get increasingly complicated.

 

• “Blocks” of information are mined to unlock new levels on the blockchain. A new coin is released on the blockchain when a block is solved. This coin can be stored in a digital wallet or traded on a cryptocurrency exchange for profit.

 

• That is not the only way to mine cryptocurrency; however, there are other ways of mining crypto.

 

Has the confusion slightly lessened? Cryptocurrencies are many, and understanding them can be complex. Getting the hang of the basics is a good start. The more you learn about crypto, the better you will understand it.

 

Then you’ll realize it’s not as complex as you probably imagined. And maybe you can decide whether or not to enter the world of digital currencies.