ARC301 – Understanding What Cryptocurrency Is and How It Works
Welcome to Part 3 of the CryptoCoinMindSet Educational Arc.
If you’ve just come from Parts 1 and 2, you now understand why the traditional financial system is broken and what “sound money” truly means.
Now, it’s time for the revelation… it’s time to introduce the solution.
This is where I pull back the curtain on cryptocurrency.
I’m going to demystify this technology for you in simple, clear terms, so you can see it not as some confusing tech trend, but as the logical and powerful answer to the problems we’ve just discussed.
Let’s be honest… a major reason we’re all here is to protect and grow our wealth.
There’s absolutely nothing wrong with that.
But just like you wouldn’t blindly pick stocks for your retirement (hopefully), you need to know exactly what you’re investing in.
Understanding the “what” and “why” behind crypto is the first step to mastering it.
Cryptocurrency Overview
So the crypto universe is vast and the information here can seem unending. So, in order to give you some level of comfort with the arena you are about to enter, we will take a “mile high” view to start.
I guess a definition of cryptocurrency is a good place to start.
According to Wikipedia, cryptocurrency is defined as:
“a digital asset designed as a medium of exchange using cryptography to secure the transactions and control the creation of additional units of the currency.”
You can find the entire Wikipedia page here.
So what does that mean?
Basically, cryptocurrency is a digital form of money or exchange.
The debate still rages as to cryptocurrency being real money. I answer that question here.
Generally these take the form of coins and others tokens.
They are generally traded or purchased on exchanges… more on exchanges in later posts.
They all get stored in wallets.
Some of these wallets are designed for specific coins or tokens. However these days, multicurrency wallets, able to accommodate coins and tokens from different blockchains, are prevalent.
There are different types of wallets, which provide you with varying levels of custody and security.
Ultimately the best of these crypto wallets are those that are noncustodial by design. That way you, and only you are in control of them and responsible for them.
I have taken the time to break down the different types and categories of wallet to help guide you on your journey, check that out here.
So what exactly do these coins and tokens represent?
For the most part, they represent a share of a specific form of currency, a platform or a project.
(Think like stocks in the stock market – that’s not exactly right, but a good representation for our conversation here)
Know that we will go into these at a later time on a more individual basis, but generally speaking they represent a currency which is designed to replace an existing fiat currency, a platform or project which is trying to create something and/or solve a problem.
I have dove deep into the potential of cryptocurrency to replace our current banking system. Join the discussion.
The Blockchain in Simple Terms
So, how does this digital money work without a bank or government in charge?
The magic is in the blockchain.
Think of a blockchain as a giant, shared, digital notebook that is publicly available for everyone to see.
Every time someone sends crypto, a new line is written in this notebook… a “transaction.”
Instead of one person holding the notebook, thousands of people around the world (called “nodes”) hold an identical copy.
When a new transaction is made, it gets broadcast to this network. The network then works together to verify the transaction is legitimate (that the person actually has the funds to send).
Once verified, a group of these transactions are bundled together into a “block.”
This block is then added, or “chained,” to all the previous blocks in the notebook, creating a permanent, unchangeable record.
Because this history is spread across so many computers, it’s virtually impossible for anyone to change a past transaction or cheat the system.
It’s transparent, secure, and controlled by no one.
That’s the revolutionary part.
Your Next Step in the Journey
By now, you should have a solid “mile-high” view of what cryptocurrency is and the revolutionary technology behind it.
You understand it’s a digital asset secured by cryptography, traded on exchanges, and stored in wallets where you hold the keys.
But knowledge is only the first step.
The next step is action.
In the next part of our arc, Part 4: The Toolkit, I’m going to guide you step-by-step through the process of buying your first cryptocurrency.
We’ll navigate the exchanges, set up your first wallet, and take your first real step into this new economy.
Your next stop is here: How Does Buying Cryptocurrency Work?
Disclaimer
The information provided here is for INFORMATIONAL & EDUCATIONAL PURPOSES ONLY!
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