Bitcoin, Ethereum, Dogecoin… you’ve probably heard these words dozens and dozens of times over the past few years, and that’s only natural since they are some of the most popular cryptocurrencies.
But first, what is a cryptocurrency?
A cryptocurrency is a digital currency that uses algorithms and is based on a blockchain protocol that is able to ensure the traceability and reliability of transactions. 100% virtual, cryptocurrencies are stored in so-called digital wallets and are increasingly used in various transactions.
Want to know more about cryptocurrencies? Here are 10 things you should definitely know:
1) Cryptocurrency is based on the blockchain
Blockchain is a storage technology that allows data to be distributed without being able to copy it.
Blockchain initially appeared with Bitcoin, but its use has been extended to several levels. It acts as a public record of all transactions made. A database unit is formed as a result of multiple transactions. This unit is called a “block”.
Each transaction saves information about the one before it. And each block keeps information about the one before it. This information is public, which is a real revolution in terms of transaction transparency!
Blockchain has introduced a storage method thanks to an open source code that is not relative to any entity.
The maintenance of the blockchain is carried out with the help of millions of computers whose role is to verify transactions and add them to the blocks. These transactions cannot be deleted or modified. This makes the payments final and, most importantly, transparent and secure.
2) The first cryptocurrency transaction dates back to 2010
While cryptocurrencies have been on the rise in recent years, their appearance and use goes back much further. Several attempts to create a virtual currency began as early as the late 1980s, all of which ended in failure. It was not until 1998 that the beginnings of a 100% virtual currency that looked more or less like today’s cryptocurrencies appeared before evolving into a 100% blockchain-based cryptocurrency.
The oldest cryptocurrency, Bitcoin, first appeared in 2008. The first transaction made with Bitcoin was on May 22, 2010. The first item purchased with Bitcoin was a pizza that cost, brace yourself, 10,000 Bitcoins. This was the first time that a material good was purchased with virtual currency. Since then, May 22 is “Pizza Day”, a day of celebration for Bitcoin lovers.
3) Cryptocurrencies are very volatile
Those of you who are interested in the cryptocurrency economy already know: cryptocurrencies are very volatile. Their prices can soar very quickly and drop drastically in the blink of an eye. The variation in a single day can even reach double digits because, unlike fiat currencies which are issued and guaranteed by a country, they are not controlled by any central bank. The latest example, last week Bitcoin lost a third of its value in a single day.
4) 20,000 cryptocurrencies have been created, only 10,000 still exist:
Everyone is able to name Bitcoin as a cryptocurrency, but there are actually more than 20,000 that have come into existence, including some very well known ones like Ethereum, Ripple, Dash, and Litecoin. According to CoinMarketCap, as of June 2022, there are 19,893 cryptocurrencies that have emerged with a total value of €941.7 billion.
5) Cryptocurrency is banned in a majority of countries
In a very large number of countries, the use and marketing of cryptocurrencies is prohibited and falls under the umbrella of illegality.
In some countries, the ban on cryptocurrencies is explicitly legislated. This is the case in Algeria, Egypt, Bolivia, Morocco, the United Arab Emirates and Vietnam.
In other countries, there are more implicit prohibitions often linked to other laws such as those against terrorism and money laundering. This is the case in Tunisia, China, Colombia, Indonesia, Qatar, Saudi Arabia and Taiwan.
6) Some states have created and launched their own cryptocurrencies
While the use of cryptocurrencies is illegal in many countries, others have decided to take the bull by the horns and create their own cryptocurrencies.
The best known case to date is El Salvador, which has officially recognized Bitcoin as a legal currency, making the country the first to legalize the use of a cryptocurrency.
This is also the case of Venezuela, which launched Petro, its own cryptocurrency, backed by the price of a barrel of oil in order to circumvent U.S. sanctions against it.
This is also the case of the Marshall Islands, which launched its own cryptocurrency back in 2018, and in the Republic of Vanuatu, which launched Satoshi Island, the first island entirely based on blockchain and where all economic transactions will be based on cryptocurrency.
Finally, in the state of Zug in Switzerland, it is even possible to pay taxes in Bitcoin or Ethereum.
Several countries are planning to launch their own cryptocurrencies soon. This is the case in England, where the Central Bank is working on this idea, but also in Turkey, Iran, Canada and Singapore.
7) Cryptocurrency is made by miners
No, we are not talking about children or teenagers who are under 18 years old. This is the name given to those who do the “mining” and are therefore behind the creation of cryptocurrencies.
Without these “miners”, the blockchain would be frozen. They have the heavy task of confirming the transactions taking place on the blockchain by providing “proof of work”, that is, the authenticity of the transaction.
8) Be careful not to invest in just any cryptocurrency
Many cryptocurrencies are called by experts: “shitcoins”. These account for 15% of the total crypto market and are small cryptocurrencies that will remain so forever. In other words, they sell you the dream of investing in an early-stage cryptocurrency that will grow in value later on, but this is definitely not the case.
As the website “Café de la Bourse” explains,”This rather crude and inherently pejorative term refers to crypto assets with no specific objectives that show a very limited capitalization, with no prospect of real capital gains. They can multiply during the expansion phase of the cryptocurrency market and tend to disappear when the market undergoes a crash and begins a bearish period”.
9) Staking, lending, and borrowing
Like any new “technology”, there is a very specific vocabulary that is used in this field, and if you ever plan to own cryptocurrencies you will hear these 3 terms very often..
Staking refers to cryptocurrencies that generate income simply by owning them. This is the case of Tezos or Cosmos.
Lending consists in depositing your cryptocurrencies on a platform and not touching them for a certain period of time. This is a bit like the savings model, where you hold your money with an organization for a certain period of time in return for interest payments. The platform in question will take care of lending your cryptocurrencies to third parties and will allow you to generate income through interest.
Finally, borrowing is the practice of mortgaging your cryptocurrencies in order to borrow an equivalent amount in another cryptocurrency.
10) African youth are jumping on board
Cryptocurrencies are no stranger to paradoxes. Despite unfavorable legislation in many African countries, cryptocurrency exchanges (especially Bitcoin) in Sub-Saharan Africa very often exceed the exchanges made in the United States.
In many countries, such as Togo and Kenya, a very large portion of young people claim to be trading in Bitcoin.
This is also the case in Nigeria. The country is in the top 10 of countries using cryptocurrencies the most. Over 13 million Nigerians are trading cryptocurrency despite clear repressive guidelines from the Nigerian Central Bank against cryptocurrency holders..
The MENA region lags behind with famously low exchanges compared to the rest of the world, which is not surprising when we refer to global cryptocurrency exchanges.