Understanding cryptocurrencies.
Cryptocurrencies arose out of the need for an anonymous and decentralised form of payment to make digital transactions more secure. In 2009, Bitcoin — the first and most popular cryptocurrency — was created. Since then, a number of other cryptocurrencies have followed, each offering different levels of security, privacy and functionality.
i.Coins — layer-1 projects
Cryptocurrencies for layer-1 projects exist on a distributed ledger, where all transactions are securely recorded in tamper-proof blocks that are part of the underlying blockchain infrastructure.
Bitcoin and Ethereum are examples of layer-1 cryptocurrencies, used for storing value and as digital payment systems.
ii.Tokens — layer-2 and layer-3 projects
Crypto tokens are issued on a layer-1 blockchain platform and are used to facilitate transactions or store data. They are minted on layer-2 or layer-3 protocols and applications.
Tokens incentivise network participants, pay fees, reward content creators and provide access to services. Examples include Uniswap, Maker and Aave.
Frequently asked questions.
What is cryptocurrency?
An online digital or virtual currency that uses cryptography to secure and verify transactions, which are recorded in a digital ledger.
How does cryptocurrency work?
Via a decentralised peer-to-peer network that enables transactions between two parties without the need for a third-party intermediary such as a bank.
What are the benefits of using cryptocurrency?
The elimination of third-party intermediaries and costly transaction fees. Transactions are generally irreversible, meaning no chargebacks can be issued; they are fast and secure, giving users greater control over their funds.
Could cryptocurrency replace fiat currency?
It is unlikely that cryptocurrency will completely replace traditional fiat currency, as it is not widely accepted by merchants and most people are more comfortable using fiat currency. However, acceptance is growing among people and businesses around the world.
How do I buy and sell cryptocurrency?
Coins can be purchased directly from cryptocurrency exchanges or through peer-to-peer trading platforms, as well as via payment methods such as credit cards.
Is cryptocurrency legal?
The legality varies from country to country. Most countries allow cryptocurrency transactions and trading, while some have placed restrictions or prohibitions on them. It is important to check the legal status in your country first.
Are there risks associated with cryptocurrency?
Yes: unregulated exchanges, the possibility of hacks and cyber-attacks, the risk of fraud and scams, and volatile prices. It is important to understand and mitigate these risks before buying and trading cryptocurrencies.
Is cryptocurrency safe to use?
Cryptocurrency is generally considered safe to use as long as you take the necessary steps to secure your wallet and keep your private keys safe. You should also take the necessary steps to ensure you aren’t exposed to fraud or scams.
What is a wallet?
A software application where you can store, send and receive cryptocurrency. Wallets come in various forms including desktop, mobile, web and hardware.
What should I consider when selecting a wallet?
Your operating system, the types of coins you want to store and the security features the wallet offers — as well as the wallet’s reputation, fees and associated costs.
A young asset class, analysed with established discipline.
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