Cryptocurrencies, sometimes called crypto, have gone from meme to mainstream. Still, it’s a blind spot for a lot of us. After all, how can something that doesn’t physically exist be so expensive?! In this short introductory blog, I’m going to address exactly that question and more. Let’s get started.

How does crypto work?

Cryptocurrency usually uses blockchain technology. Blockchain is a technology used for recording information in a reliable, secure, and decentralized way. While it has many uses, it mainly serves as a ledger for financial transactions. Essentially, whenever a transaction happens on a blockchain that is connected to a cryptocurrency, it is recorded on the blockchain. Check out our blog on blockchain for more detail.

Main Characteristics of Cryptocurrency

Mostly due to blockchain technology, cryptocurrencies have a number of characteristics that are important to go over.

• Decentralization - Crypto is usually decentralized, meaning that it has no central authority. This sets it apart from fiat currencies like USD, which go through banks. Blockchain records all the information for cryptocurrencies, so there’s no need for a bank.
• Personal info is not made public - Just because transactions happen on a blockchain doesn’t mean that personal information is included. It’ll depend on the specific situation, but generally speaking, nobody can link a crypto transfer to one particular person.
• Global - Due to their decentralized nature, cryptocurrencies are not specific to any nation. There are some national cryptocurrencies, but it’s not the norm.
• Trustless - Blockchain uses a peer-to-peer system which means that everyone on the blockchain network has a copy of the ledger where transactions are recorded. So because everybody can see what is happening, there’s no need to trust any one person or entity. Let’s contrast this with a fiat currency for example. With USD, you have to trust in the stability of the US government. If the government were to collapse, the currency would too. With crypto though, there’s no central authority, so this situation is completely avoided. While the US government is quite stable, this isn’t the case for every nation, making it a good investment for some people based on this characteristic alone. All in all, this drives up the value of crypto because it avoids the need to trust any single entity.
   

Why does crypto have value?

Cryptocurrencies have value because people believe it is a viable and reliable means of exchanging tokens for goods and services. It’s true that crypto doesn’t exist physically, but physical currencies don’t inherently have value either - we trust that they will be accepted when buying things at a set rate. Cryptocurrencies work the same way in fact - people believe they have value, so they have value! Simple as that.

Of course, trust in crypto’s value is based on something. It is made reliable by the technologies that enable it. People put trust into blockchain -  a technology known for its stability and security -instead of third parties. Again, head over to our blog on blockchain if you’d like to learn more about this technology.

What are the most popular cryptocurrencies today?

The four hottest cryptocurrencies at the moment are Bitcoin, Ethereum, Solana, and Polkadot. I’ll go over each currency's main ideas and value here, but keep in mind that each has its unique features. I’m not going to get into the specifics because this is an introductory blog, but I’ll leave links so you can investigate on your own.

Bitcoin (BTC)

• Price: $42,776
• Market cap: $827 billion
• The most valuable and popular cryptocurrency. Bitcoin uses peer-to-peer blockchain technology. Made available in 2009, it wasn’t until 2017 that Bitcoin exploded in value.

Ethereum (ETH)

• Price: $3,276
• Market cap: $402 billion
• Ethereum is another popular cryptocurrency. It’s often used for the purchasing of NFTs and continues to grow at a steady rate. Generally, Ethereum is considered to be one of the safer investments when it comes to crypto.

Solana (SOL)

• Price: $92.57
• Market Cap: $29.5 billion
• Solana’s success is attributed to its use in key ecosystems like DeFi, NFTs, and Web3. Solana is similar to Ethereum, but offers lower transaction fees and can perform more transactions per second. Only two years old, Solana has a lot of promise in the crypto space.

Polkadot (DOT)

• Price: $18.31
• Market Cap: $18 billion
• Polkadot offers three main advantages in the form of governance staking and bonding. Governance in Polkadot means that “token holders have complete control over the protocol.” Staking motivates token holders to behave in honest ways and disincentivizes bad actors. Bonding means that outdated Polkadot chains (called parachains) are removed, which is a form of proof of stake. If that sounds confusing, you can read more on their website here.

Concluding Thoughts

As you can see, cryptocurrencies offer an alternative to traditional fiat currencies. Because they are based on blockchain technology, they bypass a number of complications that fiat currencies are subject to. Of course, they come with their downsides, for example, volatility, but crypto is projected to grow dramatically in value over the next decade.