The global interest in cryptocurrency has risen tremendously in the past few years, causing Bitcoin to be named the most performing asset of the last decade. The demand for cryptocurrency assets from individuals and institutions has skyrocketed.

As you read along with this lesson, you will learn the basics of cryptocurrency, including:

• What is cryptocurrency?
• How does a cryptocurrency transaction work?
• How many cryptocurrencies are there, and what are the top few in terms of market cap?
• What are some uses of cryptocurrency?

Cryptocurrency, also known as crypto, is a decentralized virtual form of currency. In order to provide secure transactions, cryptocurrency is cryptographically protected.

Now, let’s break down what this means:

The fact that cryptocurrency is decentralized means that no single entity is responsible for its control, not even banks or financial institutions. Instead, its operation is distributed and controlled by cryptocurrency users through the internet.

Cryptographically means that it is encoded with a secret key (using encryption) so that only the receiver can decode it (using decryption).

Being a virtual form of currency means that cryptocurrency is an electronic form of money that cannot be printed.

The 2008 financial collapse was one of the main inspirations for the invention of cryptocurrency, as many people lost trust in the traditional banking system. In 2009, Bitcoin, the first cryptocurrency, was created by an anonymous person(s) named Satoshi Nakamoto. The purpose of its invention was to allow for borderless peer-to-peer transactions.

Cryptocurrency is driven by an underlying technology called blockchain. Let’s suppose you want to send some crypto to your friend.

You will use your cryptocurrency wallet to transfer the value of the particular type of crypto that you wish to send to your friend’s wallet. Then, network participants will verify your transaction. Once validated, the transaction will be added to the blockchain.

The transaction is encoded with encryption, so even though it is visible on the network, your friend’s personal information is kept private. Once the transaction goes through, the crypto is accessible to your friend via their wallet.

CoinMarketCap, the most referenced price tracking website for crypto assets, currently has over 5250 cryptocurrencies.

Here are the current top five coins based on their market capitalization:

1. Bitcoin – BTC 
2. Ethereum – ETH
3. Tether – USDT 
4. Binance – BNB
5. Cardano – ADA

Crypto has many efficient and creative uses, and its use cases continue to grow each year. Let’s take a look at some examples:

Payment

Cryptocurrencies of various types are being used as efficient payment methods for goods and services. As a result, more and more businesses and corporations are accepting crypto as a means of payment.

Speculative trading

Speculative trading is one of the most popular uses of cryptocurrencies. This is when a user trades a particular coin hoping to profit from it.

Borderless Transactions

Cryptocurrency is being used to enable borderless transactions while at the same time ensuring the sender’s anonymity, providing lower transaction fees, and increased time efficiency.

Gaming

The online gaming industry uses crypto in various ways, including offering players the ability to collect and trade virtual assets.

Hedging

Cryptocurrency is increasingly being used as a hedge against economic and political instability.

Store of Value

Crypto, especially Bitcoin, is being used by some as a store of value as an alternative to gold.

Yield Farming

Crypto is being used in Yield Farming, whereby an individual earns interest by lending out their cryptos via DeFi (Decentralized Finance) protocols.

These examples represent just a small number of how cryptocurrency is being used today. Cryptocurrency has many useful and unique applications, and new use cases are currently under development.