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About Crypto
What is Crypto?
Crypto is short for “cryptocurrency.” Basically, a virtual alternative to government issued money that is meant for secure, peer-to-peer internet transactions.
Similar to exchanging one type of money, say dollars for euros at a bank or money exchange kiosk, you can exchange dollars for - or “buy” - cryptocurrency “coins” or fractions of coins on the internet and hold them in a digital wallet. Digital currencies are becoming more mainstream. Stores like Whole Foods are beginning to accept crypto as payment and some cryptocurrencies like Crypto.com offer VisaTM cards.
Bitcoin, the original, and Ethereum are two of the biggest more recognizable names, but there are thousands of different cryptocurrencies put into circulation by private entities, the values of which are determined by their internet users. Any particular coin is worth what someone is willing to pay for it at any given moment in time. For many, they are an alternative investment. Like stocks, they are considered assets for accounting purposes.
Also like stocks, they can be a risky investment! Learn all you can, then decide if crypto is right for you.
FAQ's
What is blockchain technology?
All cryptocurrency transactions are stored in groups - or “blocks. When a block is full, it is closed then linked - or chained - to the previously filled block using cryptography. This process creates a timeline of transactional events and data that cannot be altered. In the case of cryptocurrency, this unchangeable electronic ledger is open to other cryptocurrency users and stored on computers within that currency’s network - anyone who uses that particular coin has a copy of this digital journal. The accuracy of these transactions is consistently being verified by this enormous amount of computing power. It is this confirmed, immutable list that enables secure transactions to be made without using a bank or other verifier. In this way there is no centralized ‘keeper of the books’. Instead, all users control all of the data.
What is Crypto Mining?
To prevent fraud, each cryptocurrency transaction is verified. The Proof of Work verification method, sends a math problem to computers to solve. Each computer - or “miner” - races to solve the puzzle. The first one that does is rewarded with a bit of cryptocurrency. The amount of computing power, not to mention electricity needed to work on and solve these puzzles is incredible, so often these “winners” just about break-even. After the individual verifies the transaction, it is still checked and then approved by a majority (51%) of the ledger holders before it is added to the chain. (Different cryptocurrencies use different methods to verify their transactions.)
How is Crypto different from using Paypal, using Google Pay or performing an electronic funds transfer at my bank?
PayPal, Google Pay, various other payment apps and banks depend on the traditional financial system to conduct transactions. They ask for permission to transfer currency in its electronic form. At your bank, you could go to the ATM and turn this existing digital representation of money into its physical representation -- dollar bills.
Cryptocurrency trading happens peer-to-peer; third parties do not have to ask permission. Generally speaking, there is not a physical representation of cryptocurrency; it’s purely electronic computer code. Lastly, unlike money sitting in your bank, it doesn’t have the backing or protections that government-issued currency has.(FDIC Link here?)
Is it real money?
Well. That depends. What is your definition of “real” money? Cryptocurrencies have value and can be exchanged, and for the most part, many cryptocurrencies do not represent physically tangible assets like gold or oil. However, some cryptocurrencies are minting physical coins with verifiable values stored on the blockchain and others are pegged to the value of fiat money (money issued by a government and ‘backed’ by that government instead of a physical commodity like silver). According to Investopedia, in their article “Money” updated February 4, 2021, reviewed by Charles Potters, and fact checked by Yarilet Perez, “In order to be most useful as money, a currency should be: 1) fungible, 2) durable, 3) portable, 4) recognizable, and 5) stable.” Many cryptocurrencies aim to adhere to these tenets, however some critics feel there is an argument to be made that cryptocurrency is too volatile to meet the stable requirement.
Where can I buy cryptocurrencies?
Many traditional investment platforms and brokers like Schwab, and Fidelity are adding crypto to their investment line-ups. There are also crypto only exchanges like Coinbase.com, and crypto banks, like Vast.bank.
Can I turn Crypto into Cash?
Check with the exchange or investment platform you are using for selling instructions. Some websites allow you to sell and apply the proceeds to prepaid debit cards.
Is Cryptocurrency safe?
Generally speaking transactions and user data are encrypted. However, as a currency, it doesn’t have the backing or protections that government issued currency has. So, if a cryptocurrency company goes under, the government does not cover the loss. In other words crypto is not federally insured. It is also susceptible to fluctuating exchange rates, higher exchange fees and fraud.
Is Cryptocurrency legal in the USA?
According to Decoding Crypto: Are there regulations in the US for Cryptocurrency on nasdaq.com by John Hyatt, on Aug 19, 2021, cryptocurrencies do not fit perfectly wrapped with little bows in the US regulatory frameworks, but they are recognized. Securities and Exchange commission will apply SEC regulations, Commodities Futures Trading Commission classified some cryptocurrencies as commodities with some derivatives like futures, traded on public exchanges, and the Treasury department created a Tax Plan with reference to cryptocurrency.
Glossary
Cryptocurrency:
A virtual alternative to government issued money that is meant for secure, peer-to peer internet transactions
Cryptography:
Cryptography means “secret writing”, a way of sending coded messages between two parties.In computing, it is the mathematical practice through programming languages that applies this basic theory and customized variations of cryptography to encrypt transactions, and user data.
Blockchain:
All cryptocurrency transactions are stored in groups - or “blocks. When a block is full, it is closed then linked - or chained - to the previously filled block using cryptography. This process creates a timeline of transactional events and data that cannot be altered.
Crypto Bank:
Cryptocurrency app for banking and investment where registration typically comes with federally-insured bank accounts, a prepaid debit card and cryptocurrency wallet.