By Ayobami Jayeoba, Head of Products at jaiye.ng and the Managing Partner at BamBam Automation Limited
Cryptocurrencies and the underlying blockchain technology are transforming the world as we know it, especially in finance, data security, and many other sectors.
Cryptocurrency (crypto) or digital money is a virtual currency that leverages cryptographic techniques to ensure secure transactions. Unlike traditional fiat issued by national governments, cryptocurrencies run on decentralized ledgers built using blockchain technology. Given the decentralized nature, no one can own it or exercise complete control over the currency . This makes cryptocurrencies resistant to censorship and fraud.
Some popular cryptocurencies are:
Bitcoin: It is the first and most popular cryptocurrency that came into existence in 2009 by an unknown person or group of people called Satoshi Nakamoto. Bitcoin operates on a decentralized peer-to-peer network, enabling secure and transparent transactions without intermediaries.
Ethereum: This platform makes it possible for any developer to write and distribute next-generation decentralized applications. Founded by Vitalik Buterin in 2015, Ethereum has provided the basis for an entire blockchain ecosystem.
Now, other top 5 cryptocurrencies are:
Ripple (XRP): Suited for real-time global payments.
Litecoin (LTC): Known for its fast transaction times, Litecoin is similar to bitcoin with a few key differences.
Cardano (ADA): A layered architecture focusing on security and scalability.
Polkadot (DOT) : Allows different blockchains to transfer messages, which is neat.
In general, the easiest way to trade cryptos are on Crypto Exchanges like Coinbase, Binance and Kraken, etc. Choose your preferred exchange, sign up, complete the registration process, and then add money to your account via bank transfer, bank cards, P2P or other payment methods. You can now select the cryptocurrency you want to purchase, specify the amount, and execute the trade.
If you do not want to trade or daytrade and prefer the coins not be on exchanges, you can store them in wallets.
There are two types of wallets:
Hot Wallets: These wallets are internet connected, usually a software wallet or an exchange wallet e.g. Electrum, MyEtherWallet, and Trust Wallet. These are convenient for frequent transactions but are more vulnerable to hacks.
Cold Wallets: Offline storage options like hardware wallets and paper wallets. These are more secure since they do not work online. Examples include Ledger Nano S and Trezor
Although cryptocurrency might be a bit technical to use but they have practical uses and can be used as a form of payment (especially when making cross border payments). Some stable coins could also be considered safe and in the future, may develop into high yield investments. They could also be used to develop smart contracts. For example, Ethereum is a platform that can run self-executing with the terms of the contract directly written into lines of code. Smart contracts can automatically enforce agreements without the need for intermediaries, reducing the risk of human error and fraud.
Cryptocurrencies are being widely used by the gaming industry to buy virtual goods and ingame assets. DeFi platforms also use blockchain technology to emulate and improve upon traditional financial services in a perfectly decentralized way.
Cryptocurrencies are known for their price volatility. This can result in significant gains or losses over short periods. It’s essential to be aware of the market conditions and invest only what you can afford to lose. They are also prone to risk as the technology is relatively new and open to :
- Hacking: Exchanges and wallets can be targets for hackers. To mitigate this, use reputable services and follow best security practices.
- Phishing: Be cautious of fraudulent schemes and phishing attempts that aim to steal your credentials or private keys.
- Loss of Keys: Losing access to your private keys means losing your cryptocurrency permanently. So, backup your keys securely.
The regulatory landscape for cryptocurrencies varies by country and is constantly evolving. Stay informed about the legal status and regulatory requirements in your jurisdiction to ensure compliance.
The potential uses for cryptocurrencies are vast and continually evolving. As the technology matures and adoption grows, we can expect to see even more innovative use cases emerge.