Cryptocurrency: From Newbie to Pro 

By Macharia

This is part one of a multi-part series that will teach you everything about crypto and investing in cryptocurrencies. Sign up today to get the newsletter every Sunday and learn everything about cryptocurrency.

Part 1

What is Cryptocurrency

Cryptocurrencies are digital or virtual currencies supported by cryptographic security. Several cryptocurrencies function as decentralized networks based on blockchain technology. Since cryptocurrencies are often not issued by a single entity, governments cannot potentially interfere with or manipulate them. This characteristic makes cryptocurrencies a good investing opportunity. Cryptocurrencies use cryptography to secure your money, making it exceedingly tough to counterfeit a cryptocurrency.

The Backbone of Cryptocurrency

Digital or virtual currencies supported by cryptography technologies are known as cryptocurrencies. Without help from outside intermediaries, they make it possible to make safe online payments. The term “crypto” refers to the numerous cryptographic methods, such as hashing, public-private key pairings, and elliptical curve encryption used to protect these entries.

It is possible to mine cryptocurrencies or buy them via exchanges. Not all online stores let customers use bitcoins to make transactions. In reality, barely any retail transactions are conducted using cryptocurrencies, even well-known ones like Bitcoin. However, the exponential growth in the value of cryptocurrencies has increased their acceptance as trade commodities. They are utilized for cross-border transactions to a limited degree.

The Blockchain and Cryptocurrency

The basis of cryptocurrencies is the blockchain, a decentralized public database updated and maintained by currency holders. Units of Bitcoin come from a process called mining. The currencies are bought by users through brokers, who store and use them in digital wallets.

In essence, blockchain technology is a network of interconnected blocks that have each been independently validated by a network participant/node. It is impossible to fabricate transaction histories because every new block must be checked by all nodes before being confirmed. Blockchain technology is under test by financial firms such as JPMorgan Chase & Co. (JPM) to reduce transaction costs.

Bitcoin and other Cryptocurrencies

The most well-known and valued cryptocurrency is bitcoin.  It was created by Satoshi Nakamoto, who went uncredited and distributed a white paper introducing it to the public in 2008. There were 19 million bitcoins in use as of May 2022, with a $576 billion market valuation overall. Bitcoin is finite, meaning there will never be more than 21 million bitcoins.   

Each cryptocurrency asserts that it has a unique purpose and specification. Ether positions itself as gas for the underlying infrastructure for smart contracts while banks utilize Ripple’s XRP to enable transactions across various geographical areas. Later on, in this series, we will learn more about the different cryptocurrencies that exist.

Cryptocurrency examples

There are numerous cryptocurrencies. Some of the best-known include:

  • Bitcoin: The original cryptocurrency and currently the most traded, Bitcoin was established in 2009. The person or group whose specific identity is still unknown, usually regarded by the pseudonym Satoshi Nakamoto, is credited with creating the money.
  • Ethereum: Ethereum, a blockchain platform created in 2015, has its digital currency called Ether (ETH), also known as Ethereum. After Bitcoin, it is the most widely used cryptocurrency.
  • Ripple: A distributed ledger system called Ripple was created in 2012. Ripple is a tool that can be used to track more than just bitcoin transactions. The organization that created it has collaborated with several banks and financial organizations.
  • Altcoins: The term “altcoins” is used to distinguish non-Bitcoin cryptocurrencies from the original.

Are cryptocurrencies a safe investment?

For new users, one of the biggest risks is the technical difficulty of utilizing and keeping cryptographic assets. Due to significant investor losses, cryptocurrencies have developed a reputation as risky investments. Investors in cryptocurrencies should be aware of the following risks in addition to the market risks connected with speculative assets:

  • Personal Risk: A cryptocurrency transaction cannot be stopped or reversed after it has been sent, unlike traditional financial systems like MPESA. According to some estimations, a fifth of all bitcoins is currently unavailable because of forgotten passwords or invalid transmission addresses.
  • Regulatory risks: Many countries are trying to regulate cryptocurrencies as securities, currencies, or both, but their exact status is still up for debate. A sudden governmental crackdown can make it hard to sell cryptocurrencies or result in a price decline across the board.
  • Programming risks: To regulate the transfer of customer money, several lending and investing platforms employ automated smart contracts. By utilizing one of these platforms, an investor accepts the possibility that a flaw or vulnerability in the software might result in losses.

Bottom Line

Aafribiz offers no guarantees or assurances regarding the timeliness or accuracy of the information provided here. That said, they are very speculative because they are a relatively new technology, and Aafribiz advises investing in them only after doing an extensive study.

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