What is a cryptocurrency ?

In this article I will explain what is a cryptocurrency, describe a blockchain, Cryptocurrency creation, a crypto wallet and touch on crypto regulation.

What is a cryptocurrency ?

A cryptocurrency is a digital means of exchange to the question simply.

This does not go far enough to explain how this actually works.

Bitcoin was the first official cryptocurrency.

Bitcoin set the foundation for understanding and the language used to talk about blockchain technologies.

Now we have thousands of cryptocurrencies in operation.

These cryptocurrencies are reffered to lovingly as crypto or altcoins.

Cryptocurrency

The break down of the word cryptocurrency gives us the words crypto and currency.

The first word crypto refers to cryptography which is used to secure transactions and the creation of public and private keys.

The second word currency presents Bitcoins objective which is to become a usable currency similar to the British Pound or the American Dollar.

Blockchain

All cryptocurrencies are built on blockchain technologies.

This is a distributed ledger enforced by a peer to peer network.

The idea being that it is not possible for government intervention, manipulation or human corruption to have an effect on the blockchain.

It is important to note that not all blockchains live up to this standard known as decentralised.

There are now blockchains available that present themselves as decentralised so it imperative to do your own research.

A central bank digital currency brings back the centralised issues of intervention, corruption and the like.

The objective of central bank digital currencies are to compete with decentralised currencies.

This is because of the vast amount of power handed to the people who control the money supply.

Cryptocurrency Creation

All cryptocurrencies are created algorithmically, this means they are all generated through code.

Mining is the process of validating transactions to receive newly generated or freshly minted crypto.

Staking is the process of holding crypto to receive new crypto or a return of value. From a users practical perspective there is hardly no difference between a crypto coin and a crypto token.

Crypto tokens are programmable assets that live on a blockchain that supports smart contracts.

The Bitcoin blockchain only supports Bitcoin and does not support the use of smart contracts.

The Ethereum blockchain supports numerous crypto tokens like Chainlink, Uniswap or the MakerDAO to name a few tokens.

This is achieved through the use of smart contracts.

Cryptocurrency Wallet

All cryptocurrencies are stored the blockchain.

A digital wallet is a software program designed to work in principle like a real world wallet or purse.

It will allow the user to spend and receive digital assets.

There are many different kinds of wallet that have different functional purposes.

It is very important to have an expert understanding of any wallet software you may use.

Cryptocurrencies do not have a regulatory system like traditional banks, recovering your crypto from any mismanagement is not possible.

Cryptocurrency Regulation and Law

There is no central authority or governing body for cryptocurrencies.

This does not mean however cryptocurrencies are immune from laws and regulations. As there are different financial jurisdictions around the world, these impose different regulations and laws on crypto depending on jurisdiction.

It is very important to understand your local financial laws and regulations.

When I started using cryptocurrency exchanges in 2014 all it required was an email, username and password.

Unless you use a decentralised cryptocurrency exchange that would require you to connect your wallet.

A centralised cryptocurrency exchange today must conform to KYC/AML aka Know Your Customer and Anti Money Laundering.