What is Cryptocurrency?

Well, it’s a currency that’s pretty damn Crypto.

The End.

OK, there’s a bit more to it than that!

But yes, Cryptocurrency is technical underneath. But it’s like a car: you don’t really need to understand how the engine works to drive it. All you need is the rules of the road, and know how to get in and out of it. Plus, you need an idea of what you actually want to achieve with it, otherwise, it’s just you in a metal box making vroom noises.

It’s alternative finance

The Cryptocurrency ecosystem is an alternative financial system that’s not owned by any Government.

It was set up by technical visionaries to provide an alternative to the regular financial system, following the crash of 2008.

That crash was largely down to banks making irresponsible property loans and then selling that debt to each other. The more that debt got sold, the safer it appeared. Until the debts started to become worthless and the whole house came crashing down. Governments all over the world then printed a lot of money to rescue the banks from their own mess. Of course, regular citizens didn’t see any of this generosity.

Visionaries such as man-of-mystery Satoshi, were horrified. They envisaged a financial system for the world that was free of Government control and censorship. They saw a future where every transaction was transparent and traceable, corruption was impossible, and no one could just “print money”.

Bitcoin was the result, and many other Cryptocurrencies followed.

Is Crypto any use?

Cryptocurrency is best thought of as “intelligent money”, and it helps to use the word “tokens” rather than “money” or “coins”.

Cryptocurrency can function as a currency allowing you to buy and sell things. But it’s a lot more. Crypto can be smart, too.

Clever money

The next big coin to be launched was Ethereum, launched in 2014. Compared to the Gorilla that is Bitcoin, Ethereum is the over-clever chimp from the cartoon with a screwdriver and a box of tricks.

Yes, Ethereum can be transferred to pay for things just like Bitcoin, but its “blockchain” is designed to be used by other tokens, allowing thousands of different tokens to exist.

It also pioneered the idea of “Smart Contracts”: which are bits of code that can intelligently handle transactions. Imagine, in the future, a house purchase done through smart contracts for nothing! Cryptocurrency is the ultimate middleman-remover.

What is a Blockchain?

This is the technical bit. A blockchain is an ever-growing database of transactions that have happened since the birth of the token. It can’t be edited: that would invalidate transactions and be a very bad idea.

There are lots of copies of that database held on computers around the world, and the blockchain’s job is to make sure they all agree on what happened. The blockchain also has to manage the creation, distribution and sometimes destruction of coins and tokens.

This differs from blockchain to blockchain.

A blockchain would be nothing without “addresses”. They’re like little digital post boxes that can hold tokens: a mini-bank account. An Ethereum address can hold many types of token, from the serious to the comic. Don’t even try to keep up! There are other blockchains that compete with Ethereum on functionality, speed and security, but Ethereum is the one that gained critical mass.

Why so many tokens?

Because they have different uses.

Here are the different kinds of tokens you might see out and about:

1. Decentralised store of value – the token exists to be worth something (for example Bitcoin) and isn’t controlled by any central authority
2. Stablecoins – the token exists to digitally represent the value of something else (like a real-world currency, for instance, such as USDC)
3. Utility tokens – this specialised token exists to make a system work (for instance, money transfer or supply chain verification)
4. Security tokens – the token entitles you to a share of an asset (such as a business, a property, or an asset such as art).

Why are these imaginary tokens worth anything?

Different tokens get their worth in different ways.

For most tokens, there’s a limited maximum amount that can exist: for Bitcoin, it’s 21 million. Other coins have much higher numbers than that. That scarcity is one key to their value. Bitcoin also gets harder to create as time goes on. This also adds to the value. But it’s more than scarcity.

Bitcoin is an example of “proof of work”. The “work” here is solving complex mathematical puzzles by brute force calculation (and trying to be the first to solve the puzzle).

That requires a lot of electricity (most of which is from renewable sources). Some of Bitcoin’s value is the conversion of valuable electricity to Bitcoin.

Some tokens are “Proof of stake”. Coins are earned by “validators” using their computer power to validate transactions on the blockchain.

Utility tokens are often an example of “something is worth whatever someone else is willing to pay”. General investors should probably stay well away!

Security tokens get their worth by providing a share of an underlying asset or revenue flow, and to be considered as ‘security tokens’, they would have to be approved by regulators.

How do you get Cryptocurrency?

The only practical way for normal people to get into Cryptocurrency is to buy it, or earn it.

You can buy Crypto in many places, and most of the reputable options now take debit cards. Bank transfers are often also possible.

Wherever you buy your Crypto from, you need to make sure that the company is safe and secure. A good company will explain how it deals with these issues on its website. A good company will always let you sign up for free, and then verify your identity. This is called “KYC” (Know Your Customer”), and it’s a sign that the exchange takes its AML (“Anti-money laundering”) obligations seriously.

So, here are some of the options for you to fill your boots:

Crypto exchange

A Crypto exchange will bombard you with information.

There are charts, order books, curves of all descriptions and a fast-moving price. This is because it’s geared to traders, who buy and sell Cryptocurrency regularly.

Once they’ve moved their funds into the exchange, they trade between Bitcoin and many other Cryptocurrencies or sell their Cryptocurrency into stablecoins to wait for a good time to rebuy.

While there is a very long list of possible Cryptocurrencies you could buy, you might want to consider Bitcoin: the granddaddy of Cryptocurrency.

Exchanges vary wildly in terms of how competitive their rates are, and what fees they charge. While you might get a much better price on the coin, you might face steep commission or fees on withdrawing from the exchange.

The cheapest exchange is INX Digital. The most popular one with American consumers is Coinbase, but it’s expensive.

Note that some exchanges can’t operate legally in some countries, so you’d need to check.

Other exchanges include Gemini, Kraken and Bitstamp. Regional exchanges also specialise in trades in another native currency, such as CoinCorner in the UK. In general, the bigger and more regulated the exchange, the better.

Paypal or eToro

eToro and Paypal are organisations both best known for doing something else: in Paypal’s case, providing payment services, and in eToro’s case, an alternative way of buying shares in companies such as Apple or Amazon.

While they are definitely easy and safe to use, neither is cheap.

Wallet purchases

When you buy Cryptocurrency at an exchange or Paypal/eToro, your tokens will stay in their custody until you send it somewhere else, usually either a wallet (if you want to store your Crypto) or a lending app (if you want to invest it for interest).

Storing your stash

A blockchain consists of a practically inexhaustible supply of addresses. Each one is a bit like a safety deposit box for Crypto tokens. It’s very important to note that tokens never leave the digital realm: they’re purely virtual.

However, while the blockchain never loses tokens, it is possible for the owner to lose access to them.

Imagine a safety deposit box with a thin slot on the front that allows tokens to be inserted, and a locked door at the back, to which only you have the key.

The “address” of the box is public: it allows anyone to find the slot and insert coins. However, the key is private to you, and owning it means owning the box and the beautiful, beautiful Crypto inside.

If you lose that key, you can only stand on the outside looking through the slot and dreaming of better times.

If you buy Crypto at an exchange, then you’ve basically bought an IOU. However, exchanges allow you to send your Crypto out of the exchange (for a fee, of course!) to an address you have the key to. At that point, the Crypto is under your control. You should never leave Crypto at an exchange longer than it’s needed.

The Why of Wallets

A Crypto wallet’s job is to manage a collection of private keys and addresses, and allow you to send and receive tokens easily.

There are various types of Crypto wallets, and the one that is suitable depends on how secure you want to be: if a wallet is connected to the Internet (for example, an app), it’s less secure than one that isn’t (for example, a USB stick from someone like Trezor or Ledger, or even on a piece of paper).

There’s no actual rule that you only have to use one type, either. If you have a list of the private keys (a wallet should be able to give them to you), then you can create multiple wallets.

What if my wallet fails?

Whatever wallet you set up, you will be asked to write down a series of random words. These act as a recovery key for the wallet, and you will only ever see them once. If your phone breaks, or your computer crashes, you can recover your wallet with that phrase.

• IMPORTANT: that code is specific to that wallet software. While you can give private keys to other wallet software, you cannot get one wallet app to recognise the code from another one.

What do I get out of Crypto?

Ah, you’re a realist! Yes, the main reason most people get into Cryptocurrency is to try and make some money. And that’s just what you can do!

It’s probably best to adjust your expectations: this is a more mature market and “Invest $1, get $1,000,000” doesn’t happen now.

These days a decent return on your money needs what it always did: a nice pot to start, sensible decisions, trusted investment partners, and of course, time.

For those new to Crypto who don’t fancy spending all day trading, the investment choices boil down to two things: what to buy, and what to do with it.

Investing in Crypto is, by its nature, not “conservative”. But there are degrees of risk. Let’s assume for a moment that your preferred measure of wealth is US Dollars.

In Crypto, the conservative option is to buy stablecoins.

The price of a stablecoin remains stable, so a US Dollar stablecoin is always worth $1 (more or less).

However, the dollar still moves relative to Bitcoin, other Crypto, and other foreign currencies, and so it can be used as a base for trading in those.

A more aggressive option is to buy an established Crypto such as Bitcoin or Ethereum. The underlying price against the dollar can vary a lot even from hour to hour, and there might be times when the dollar value is less than you paid. However, it’s only a loss when you sell, and Cryptocurrency has tended to go up over time: if you have patience.

The ultimate aggressive investment is to buy other Cryptos, known as “altcoins”. There are established altcoins such as Litecoin that everyone agrees are reasonably safe, but it’s highly speculative. The coins in regulated exchanges have generally been vetted and approved.

Got some Crypto tokens, what now?

You’re now a proud Crypto owner! So what do you do with it? It’s making no money for you sitting in a wallet.

Luckily, AQRU will give you substantial interest on your tokens if you invest with us. In fact, that’s the only way to make a consistent profit on stablecoins, and it’s certainly a bonus while you’re sitting there waiting for your Crypto to appreciate.

At AQRU, we offer 0% interest on Bitcoin or Ethereum, and up to 7% on dollar stablecoins. You can even buy in the app, and get 10USDC to start. Subject to terms and conditions, we also give you $75 for referrals.

Don’t miss out, sign up today and start earning high rates of interest!