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Cryptocurrency for dummies - 7 things you need to know

Cryptocurrency is the new buzzword among the rich and famous, multi-national companies, and even some of the world’s governments. Picture: REUTERS/Benoit Tessier/Illustration

Cryptocurrency is the new buzzword among the rich and famous, multi-national companies, and even some of the world’s governments. Picture: REUTERS/Benoit Tessier/Illustration

Published Apr 25, 2022

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Durban - Cryptocurrency is the new buzzword among the rich and famous, multi-national companies, and even some of the world’s governments.

And at first consideration, one may be forgiven for thinking it is a currency movement reserved for only big movers and shakers.

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This is not the case, however, and even ordinary people are able to get involved in the world of crypto with relatively small amounts of money. Of course, like most investments, the more you put in the more you stand to gain - or lose.

“I actually enjoyed my foray into the world of cryptocurrency,” says one Durban woman who used a local crypto app to get started.

“I only put in a few hundred rands initially and then a couple of further small deposits over two or three months. I enjoyed watching my ‘money’ go up and down in my account, although obviously watching it increase without me doing anything was the greatest excitement.”

What is cryptocurrency?

Cryptocurrency was first heard of in 2009 when the first de-centralised digital currency Bitcoin was created by an entity - either a single person or group of developers - known as Satoshi Nakamoto.

Now the popularity of cryptocurrency has grown enormously, with more and more people investing in the high-value digital currency. Based on a network that is distributed across a large number of computers, it is a de-centralised digital currency that does not rely on a central authority such as government or a bank.

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How does it work?

Blockchain, a type of public ledger technology, is where all cryptocurrency transactions appear and it allows cryptocurrency to act in a de-centralised manner.

Cryptocurrency transactions take place between two digital wallets. The transaction is submitted to a public ledger and awaits for confirmation. Once the miner (the cryptocurrency platform or app) confirms the transaction, the money is transferred to the receiver’s wallet.

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How many types of cryptocurrency are there?

In total there are 16 961 cryptocurrencies, according to Coin MarketCap. Some of the cryptocurrency names that you may recognise include bitcoin, ethereum and dogecoin while there some names that you may not recognise such as Litecoin, Polkadot and Verge.

Can cryptocurrencies be hacked?

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Yes, but it depends on the cryptocurrency. Bitcoin is considered to be one that cannot be hacked because its blockchain is continuously monitored. However, cryptocurrency wallets and other platforms that handle cryptocurrency can be hacked.

Who can own a cryptocurrency?

The answer to the above question is anyone. Famous people that own cryptocurrency include tech entrepreneurs, famous musicians, and even actors. Some of the famous owners that you know of are Snoop Dogg, Elon Musk, Kanye West and Maisie Williams.

How did digital currency become popular?

The two factors that have contributed to the popularity of cryptocurrency are:

De-centralised currency: Cryptocurrency is not reliant on an institution like government or a bank, therefore there is no entity that can stop a cryptocurrency transaction.

Payment for products and services: Now that bitcoin can be used as an alternative way to pay for products and services, more people are buying digital currency.

What determines the value of cryptocurrency?

There are four elements that determine the value of cryptocurrency: node count, supply and demand, mass adoption, and finally inflation of traditional currencies.

IOL WEALTH

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