What are cryptocurrencies really?
There are countless cryptocurrencies nowadays. To be precise, there are almost 11,000 different currencies in existence at the moment. And there are more and more each year.
But what exactly is a cryptocurrency? This question is answered with this blog entry. So let’s start figuring out everything you need to know.
A cryptocurrency is a digital asset. It can be tradet and exchanged like any fiat money or any other asset.
What are the properties of cryptocurrencies?
Let's beginn with the first cryptocurrency. The Bitcoin. The Bitcoin saw the light of the digital world in 2008 and is still one, if not the best known cryptocurrency today. Bitcoin has the aim to act as digital money in order to be used as a means of payment on the Internet.
In addition to its function as a means of payment with which assets can be exchanged without the need for a third party, such as a bank, cryptocurrencies can also be used to create decentralized apps. For this purpose Ethereum is spezialised. Although all cryptocurrencies are based on blockchain technology, different types of implementation also allow different applications.
The term currency is not always accurate. Some cryptocurrencies can be used as a means of payment. However, this is not possible with every currency. Moreover, cryptocurrencies have become more of a speculation object.
The difference between fiat money and cryptocurrency:
The big difference between a cryptocurrency and other assets or fiat money is that cryptocurrencies are not regulated by governments or other central authorities. They are created by peer-to-peer networks. How the exact mining process works is described here:
Cryptocurrencies do not exist in physical form, but only digitally. Furthermore, they are not issued by States and, except in El Salvador, are not considered as official means of payment. Thus, every cryptocurrency is decentralized.
Cryptocurrencies can be purchased on specially designed trading platforms (crypto exchanges) such as Binance, Coinbase and many others. Sometimes it is even possible to invest in cryptocurrencies via regulated exchanges, such as XETRA, Frankfurt Stock Exchange and many others. This is possible with so-called ETPs. An ETP is like an ETF, which tries to replicate the index of a cryptocurrency as accurately as possible. The cryptocurrency to be replicated is physically stored.
So far, it’s all just a rough theory. Let’s get a visual overview of the most important cryptocurrencies and their fields of application:
This brief insight will hopefully help to not lose track of the many currencies and above all to answer the question what cryptocurrencies actually are.