Crypto 101: A Beginner’s Guide to Decoding and Understanding Digital Assets

Cryptocurrencies are one of the most popular digital assets to date. In this article, discover what they are and understand the terms that help define them.

Statistics in 2023 show that there there are around 420 million cryptocurrency owners around the world—with roughly 7 million of them coming from the Philippines. Given these numbers, the country is now included among the top countries in terms of crypto adoption. In fact, it was in 2022 that the country ranked next to Vietnam.

Moreover, according to CoinMarketCap, there are approximately 23,000 cryptocurrencies, which proves that the digital asset has gone a long way since it first came to be. Though there are many crypto assets and owners worldwide, it appears that over 60% of people actually don’t understand it at all

Despite the fact that there are thousands of crypto assets in the market, some people tie the word cryptocurrency to Bitcoin, the most valuable and most popular crypto, when in fact, Bitcoin is just a form of cryptocurrency but is not synonymous with it. 

For those who are confused about what cryptocurrency means and what’s it all about, here is a beginner-friendly guide that will have you understand it better before you plan to invest in it. 

What are Cryptocurrencies? 

CoinTelegraph defines cryptocurrency as a digital currency designed to work as a medium of exchange. It uses cryptography to secure and verify transactions, as well as to control the creation of new units of a particular digital currency. 

Unlike fiat or regular currencies, cryptocurrencies are decentralized assets that work on top of blockchain technology. This means that there are no central authorities such as financial companies or banks that manage their flow and operations. As digital assets, cryptocurrency values are not directly comparable to the currencies like the US dollar, British pound, or Euro. 

Rather, their values are determined by several market factors such as the law of supply and demand, production costs, government regulations, and reputation among several others. With these determining factors, volatility has become one of the most notable characteristics of these assets. This can be seen by how the prices tend to go on a bullish or bearish run every now and then. 

Given the high value that some crypto coins have, some people tend to see them more as an exchange tender as some invest in them. Despite the fact that there are thousands of cryptocurrencies in the market, there are some notable ones that are more valuable and preferable for investors. So far, here are some of the most popular cryptocurrencies and their respective tickers: 

  • Bitcoin (BTC)
  • Ethereum (ETH)
  • Tether (USDT) 
  • Binance Coin (BNB) 
  • Ripple (XRP)
  • USD Coin (USDC)
  • Cardano (ADA)
  • Dogecoin (DOGE)
  • Solana (SOL)
  • Tron (TRX)
  • Litecoin (LTC)
  • Polygon (MATIC)

How Cryptocurrencies Work

Cryptocurrencies run on blockchain technology, which works as a distributed public ledger. This means that all crypto transactions are etched on the blockchain and can no longer be reversed. By harnessing this technology, crypto users are spared from the risk of having their assets hacked and used without their knowledge. 

Blockchain technology works as a set of connected information blocks in an online ledger. Each “block” is filled with transactions that have been confirmed by the network validators. Given that each block needs to be verified and confirmed first, it becomes more unlikely that transactions can be tampered with. 

Crypto assets may vary according to their function but each of them is etched on the respective blockchain that they use. For example, Bitcoin and Ethereum both use their own blockchains, while other cryptocurrencies work on top of Ethereum’s blockchain. By being decentralized assets on the blockchain, users are assured that all of their crypto transactions are not reflected on their bank accounts or statements. 

Where They Come From

Cryptocurrencies are formed through a process called mining. This process involves an immense amount of effort in computer processing and complex math-solving skills before obtaining the coins. 

Mining can be done to directly obtain a crypto coin and earn rewards from it. However, the exact methods and the technical requirements for each one may vary accordingly, especially as each asset may employ different consensus algorithms. For example, Bitcoin uses Proof-of-Work (PoW) while Ethereum has a Proof-of-Stake (PoS) which mainly involves the use of smart contracts.

The Many Uses of Crypto

There are several reasons why people invest in cryptocurrencies and one of them is the fact that some people find it as something to earn lucrative returns from. Aside from being an investment, cryptocurrencies hold so much more potential as they have a lot of uses in which people can make the most out of them. Here are some of them:

  • Purchasing: There are several countries that deem Bitcoin and other crypto assets legal and acceptable as legal tender. In such countries, crypto holders can use their coins to purchase from both online and offline stores and restaurants. Aside from that, people can also use their crypto assets—especially BTC—to buy luxury cars, house properties, and even flight tickets. 
  • Low-cost transfers: Among the uses many users enjoy with using crypto is how it can be used for efficient remittances, including cross-border transfers. Since central authorities do not govern them, there are no forces to dictate high fees to be levied on every transaction. The value of assets also doesn’t depend on where the recipient or the sender might be since they need not be converted from one currency to another. Aside from that, transactions made with crypto can be completed within a few minutes—unlike traditional methods which may take days or weeks. 
  • Private transactions: Given the decentralized nature of cryptocurrencies, some people make the most out of it by using it to complete unnamed transactions. Unlike with banks or remittance companies, transactions made with crypto can be completed anonymously. Instead of details that confirm one’s identity, the only important details that matter for every transaction is the wallet address that the crypto would be sent. 

Obtaining and Storing Cryptocurrencies

One may head over to crypto exchange platforms like Binance, Coinbase, and Kraken to buy crypto. By creating an account there and having it verified, they can buy their initial crypto assets for their equivalent value in fiat. On such exchange platforms, they may also opt to trade any crypto asset they have for another form of coin.

Many exchanges give their account holders access to a wallet where they can store their assets safely. Aside from those, there are also several other types of crypto wallets that people can choose from. There are two types of crypto wallets—hot and cold wallets. Hot wallets are those that are available online while cold wallets are offline and come in physical devices. 

Are They a Good Investment?

Like any other asset, cryptocurrencies come with advantages and disadvantages that should be studied about. This may apply to how these assets can be valuable yet so volatile at the same time. With the high demand for these assets and the massive potential that they have, people should learn more about their technicalities before diving headfirst into the world of crypto. 

Given that there are various crypto assets in the market, it’s also vital that people spend some time reading about how each one differs and what each one is used for. That way, it will be easier to decide which crypto asset works best for them and if they can really consider it to be worth their money.