Even if you live under a rock, you’ve probably heard of Bitcoin, Ethereum, Litecoin, Dogecoin and other cryptocurrencies that like that. In the news we hear terms like “cryptocurrencies,” “litecoin” and “ethereum,” but some of us have no idea what people are talking about.
A cryptocurrency, broadly speaking, is a currency that takes the form of a coin or token and exists on a distributed, decentralized book. A cryptocurrency is issued by a cryptocurrency that runs on the blockchain protocol, which is why it is often referred to as which is the methodology used to “mine” or create, using computers, the coin. Independent cryptocurrencies use their own blockchains, while other cryptocurrencies build on existing blockchain systems.
They can either be based on the Bitcoin blockchain, have their own native blockchain (ripple and ethereum), or be split into different cryptocurrencies, each of which has its own blockchain that can support them and build on other blockchains, also known as tokens.
To store and use cryptocurrencies, you usually need a special “wallet” that has its own unique digital address and allows you to send and receive cryptocurrencies. It’s a little techie, that is sure, but, the good news is that services like Robinhood now offer easy purchase and holding options for most of the cryptocurrencies out there. It’s as easy as jumping on and buying a few stocks.
At the end of the day, anyone can create a digital currency, so there can be thousands of cryptocurrencies in circulation at any time and they are all for sale. Just look at any exchange on the net, you’ll see tons of names and values you’ve never heard of!
If you understand how cryptocurrencies work, a good start is Bitcoin, the most widely used cryptocurrency. If you don’t want to invest in Bitcoin or Ethereum, but instead want to invest in legacy coins like Ripple or Stellar, you have to be smart about which investment group you invest your money in. It may be all the rage at the moment, and it can cause a lot of confusion for some people, especially if you don’t know them or don’t want to take the risk of investing in them.