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Beginner’s guide: What is cryptocurrency?

May 19, 2021 | 12 minutes reading
By Amy Luong

Cryptocurrency or crypto is not a new thing. With its epidemic growth, cryptocurrency has become the most noticeable market these days. However, if you are a beginner in this market and still confused about digital currency: what is cryptocurrency, how cryptocurrency works? what is a crypto wallet? this article is exactly what you need! If you are already a crypto trader, have a look to supplement your knowledge for better understanding. 

What is cryptocurrencyWhat is cryptocurrency

1. What is cryptocurrency?

Cryptocurrency is a digital currency that allows its owners to exchange them on a decentralized basis which is called blockchain technology. 

The feature that differs cryptocurrency from fiat is that they are not issued or controlled by any government, leading to the inability to manipulate them for any political purpose.  

What is blockchain

“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value,” Don & Alex Tapscott, authors of Blockchain Revolution (2016).

Blockchain helps answer the question: what is cryptocurrency backed by? Though sounds complicated, blockchain can be understood as a kind of database that is distinguished from other databases by its information storage method. When new data is created, it is put into a new block. The new block and old block will be chained together, making a system of information. 

In the case of cryptocurrency, blockchain is used as a decentralized system, therefore, it cannot be controlled by any individuals or institutions. All transactions performed are recorded and are never removed. 

By allowing digital information to be distributed but not copied, blockchain technology eliminates all intermediaries, enhancing security, transparency, and stability as well as minimizing costs and errors made by humans.

2. Is cryptocurrency legal?

Up to now, Bitcoin and other cryptocurrency are legal in 69 countries including Japan, the United States, Germany, Canada, etc. However, there will be some limits due to the policy of each nation. 

3. What is the best cryptocurrency to invest in 2021?

This is such a difficult question to answer. Bitcoin (BTC), as you all know, is the first cryptocurrency. But there are thousands of cryptocurrencies on the market right now. According to Coinmarketcap, more than 4000 cryptocurrencies are existing on the market (recorded in May 2021). Below is the top 10 of the highest-rank crypto. 

  • Bitcoin
  • Ethereum
  • Dogecoin
  • Cardano
  • Tether
  • 1INCH
  • XRP
  • Polkadot
  • Bitcoin cash
  • Litecoin

Right now, there are 35 cryptocurrencies including 10 items above traded on Tokenize.Exchange store.

4. What is cryptocurrency exchange?

A cryptocurrency exchange is a platform where traders and investors can exchange their digital assets like cryptocurrencies to fiat money or exchange among cryptocurrencies. 

There are two kinds of exchange: Centralized exchange and decentralized exchange

What is cryptocurrency exchangeCryptocurrency exchange allows you to trade your digital assets

A centralized exchange is the most popular form of exchanges that are platforms developed by private companies that allow users to buy and sell their digital assets. There are some common exchanges like Coinbase, Binance, Kraken, and Tokenize Exchange. To avoid fraud and protect users, these platforms require registration and identity verification. 

In contrast, the decentralized exchange allows peer-to-peer transactions among traders without any intermediary and transaction fee. However, their limit is that traders cannot exchange fiat money to digital currencies. Though it has some advantages, decentralized exchanges contain some security risks since it has no rules to run the system and users do not have to verify their identity. 

From the advantages and disadvantages of both exchanges, traders and investors can choose an exchange suitable for their purpose. 

All transactions on crypto exchange require credit cards, deposit cards, or other kinds of payment forms. At Tokenize Exchange, users can deposit USD or SGD via bank account quickly and simply. 

5.What is cryptocurrency wallet?

Same as fiat currency, you need a wallet to keep your digital currency. A cryptocurrency wallet is a place to store your digital assets. It is a device or software that exists in digital form. Your cryptocurrency is actually stored in the blockchain system because the crypto wallet is only a place for users to access and use that coin on the blockchain system.

A cryptocurrency wallet usually consists of 2 important factors:

Public Key: This is the user's wallet address to receive crypto transferred to the wallet.

Private Key: A place to access your crypto wallet and use the coin that you own. 

2 types of cryptocurrency wallets: 

What is cryptocurrency wallet?What is cryptocurrency wallet?

Hot wallet

Hot wallets are cryptocurrency wallets that are connected to the internet like Online/Web wallets and Mobile wallets. For example, MyEtherWallet, Trust Wallet, and Staked Wallet. 

To withdraw crypto on Tokenize Exchange to your wallet, you should enter your public key. It’s very easy and convenient to use. However, due to its easy-to-set-up, there are hacking risks involved when using hot wallets. 

Cold wallet

A cold wallet is a cryptocurrency wallet that is not connected to the Internet. Instead, it is downloaded and stored offline on hardware such as a USB or smartphone. Ledger Nano X and Trezor Model T are two examples of cryptocurrency wallets commonly used as cold wallets. 

This wallet is suitable for long-term investors because it uses a physical method to store keys offline, against online attacks, however, it’s a bit inconvenient for frequent use. Currently, cold wallets are used by more and more people due to their safety and security.

We hope this article helps you answer the question: What is cryptocurrency, what is cryptocurrency backed by, and what is crypto wallet. Keep following Tokenize Academy to explore more knowledge to help you in cryptocurrency investment. 

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