Cryptocurrencies like Bitcoin and Dogecoin are all the latest buzz. We want to give you some cryptocurrency basics so you can feel prepared to make your own decisions.
There is a lot of confusion and speculation and WTF vibes around cryptocurrency. Is this for us or is this for bros? Is this scammy? As a platform that believes in investing as a gateway to generational wealth, we feel it is our responsibility to give you the basics on all forms of investing & investment vehicles. We want to reiterate that we do not give financial advice; instead, we want to give you holistic financial information for you to feel empowered to make your own informed decisions. That includes giving you some cryptocurrency basics. So what is it?
Cryptocurrency Basics: The Definitions
Cryptocurrencies are digital assets, or digital currencies. Their “sibling” is the fiat currency, or hard, government-issued money. Think dollars, pesos, or euros for fiat currencies. Cryptocurrencies get their name from the technology system that secures these assets: cryptography. This system uses advanced mathematical codes to encrypt the data, making transactions only accessible to the sender and receiver.
Because of this system, cryptocurrencies are also decentralized. Unlike hard currencies, there is no government control or regulation over it (yet…). Instead, there is a set number of “coins” of a type of cryptocurrency in existence. Blockchain technology makes this possible. All you need to know about this technology is that it is one of the newest, most advanced ways of storing data. It also allows for people to exchange cryptocurrencies from person to person; there is no need for third parties, including banks. To make a transaction, you would need someone’s public key.
Crypto vs Stocks
One of the cryptocurrency basics is that since they are a digital form of currency, you cannot buy “shares” of them like you traditionally would via stock market investing. They are not a company and there is no single owner. More differences:
- You can only buy stocks Monday through Friday on stock exchanges, but you can buy crypto at any hour
- The government does not regulate crypto like they do stocks
- Not all records of stock trades are publicly available; blockchain technology publicly records transactions and can be viewed at any time. What remains private, however, is the owner of the “key,” or wallet
Types of Cryptocurrency
In the same way there are many different types of fiat, or hard, currencies, there are several types of cryptocurrencies. In fact, as of early 2021, there are over 4,000 different types of cryptocurrencies. These are either coins or tokens. The cryptocurrency basics you need to know here:
- You use coins as currency only, aka processing payments
- Tokens have wider functionality, including payment processing, acting as proof of investments in real world assets, and providing access to platforms,
For further reading into the key differences, we like this piece outlining the differences between crypto coins and tokens.
Where To Buy
Now, you can buy crypto from multiple platforms, including the popular platform Robinhood. Note: we are not a fan of Robinhood! However, it is most efficient using exchanges like Coinbase, Kraken, or Gemini. These exchanges allow you to withdraw your coins, whereas Robinhood only allows you to trade them.
Where To Store
Because cryptocurrency is a currency, you’ll need a wallet to store what you purchase. Having your crypto in a wallet will also allow you to transact your coins, since you now have a digital wallet with a signifying code. We like this article that outlines many of your digital wallet examples, with explanations for each.
Deep Dive: Bitcoin Basics
Easily the most popular cryptocurrency is Bitcoin, created in 2009 by an anonymous source. On exchanges, you’ll see this as BTC, its ticker symbol.
Like many other forms of cryptocurrency, Bitcoin is entirely decentralized. An entire network independent of any single government or company manages the transactions. Because there is no third party involved, Bitcoin, like any other cryptocurrencies, are great for international transactions.
Because Bitcoin is the most widely used and circulated cryptocurrency, it is the easiest to use for transactions in many of the same ways you can use cash. You may have even seen Bitcoin ATMs recently, with some even allowing you to sell Bitcoin for cash. This is why having a digital wallet is important—it allows you to access your crypto when you need it, as well as actually be able to use it.
Here are some more bitcoin basics:
- There are only 21 million bitcoins; it is estimated that there are about 2.64 million bitcoins left that are not yet in circulation
- New coins are released, or “mined,” periodically
The Bottom Line
We know this might be a lot. We also know this is a topic with a lot of speculation around it. It is precisely for that reason that we invite educators like Dr. Hans Boateng and Kiana Danial onto the podcast to give their expertise on crypto, including cryptocurrency basics. Online, we see both a lot of hype around crypto, and a lot of shaming. There is nothing wrong with opting out, and nothing wrong with opting in. What’s wrong is not being fully informed in your decision-making. And if you’re a new investor, you may want to reconsider which investment vehicles you choose to prioritize and get comfortable with first.
New to investing and don’t know where to start? Check out our piece on how to start investing, which includes an overview of different investment accounts and investment vehicles.