As of September 2024, there were over 20,000 cryptocurrencies in the world. However, most of these cryptocurrencies are inactive. By 2023, the recognized number of active cryptocurrencies was about 9,000.

Why are there thousands of cryptocurrencies? Creating cryptocurrencies is open; anyone with expertise in writing blockchain programs can create one. As such, it is important to read a beginner’s guide into cryptocurrencies before getting into the crypto space.

In 2017, Bitcoin's price increased by over 1800% between January and December, sparking conversations about cryptocurrency. This was the first time crypto exploded into public consciousness.

Despite growing in popularity, crypto has become more challenging to understand. Whether you are looking to understand the basics of cryptocurrency or invest in crypto, this crypto dummy article will help you get started.

What is cryptocurrency?  

A cryptocurrency is a digital currency that can be used for payments and can be traded between individuals without the oversight of a central authority.

Similar to everyday money, crypto is a store of value, and is used as a unit of account and a means of exchange. However, unlike fiat, cryptocurrency does not have the guarantees of central banks and governments. 

A Brief History and Origin of Cryptocurrencies

In 2022, crypto came crashing down to the bottom. The internet was abuzz with discussions on whether the cryptocurrency bubble had finally busted. Was crypto about to be a thing of the past?

Prices were dropping as some cryptocurrencies were collapsing into worthless coins. Some crypto companies, such as FTX went into bankruptcy, investors lost funds and the founder was arrested for fraud. 

Yet, crypto enthusiasts and some analysts expected the crypto market to recover. And it did; restoring faith in the potential of crypto. Well, what is the origin of cryptocurrencies?

The Origin of Cryptocurrency

The concept of crypto was inspired by the 2008 financial crisis. The crisis revealed the flaws of the banking system, leading to people losing faith in the traditional banking system.

Following the crisis, an anonymous entity named Satoshi Nakamoto released the idea of blockchain and the first-ever cryptocurrency, Bitcoin, in 2008. Satoshi referred to Bitcoin as a peer-to-peer version of digital money. 

Bitcoin and its blockchain were officially launched in 2009 and it was the only established crypto until 2011. Cryptocurrencies like Bitcoin are created by mining; a process that involves solving complex mathematical problems.

Enthusiasts and Bitcoin users started to notice the limitations of Bitcoin, leading to the creation of alternative cryptocurrencies known as altcoins. Altcoins were aimed at improving aspects such as speed, scalability, and security; among others. 

Ethereum, an altcoin launched in 2015, has grown to be one of the largest cryptocurrencies by market cap. As crypto popularity grew, the created cryptocurrencies grew to over 18,000 by 2022. 

What is Blockchain?

Simply put, blockchain can be described as a ledger, in which different participants who are anonymous and have no trust, can trust that the shared ledger is the accurate record of all transaction data.

A blockchain is a public digital ledger where all users can view transactions. Cryptocurrencies are built on blockchains; meaning all crypto transactions are recorded into the public ledger. 

Blockchains store data in blocks linked together forming a chain. An individual cannot modify or delete data from the chain. Additionally, blockchains have an in-built mechanism (a consensus) that prevents entries of unauthorized transactions; ensuring consistency. 

The blockchain features can be summarised into:

• Immutability

• Decentralization

• consensus

Typically, blockchain was created to store crypto transaction data. But today, blockchain can be used to store data in different industries as well. According to a recent report, over 80% of the world’s leading companies use blockchain today. 

Examples of companies exploring blockchain technology include Siemens, Walmart, Unilever, and Pfizer. 

Major cryptocurrencies and their unique features

Bitcoin (BTC)

Currently, Bitcoin has the largest market cap at about $1.3 trillion. Being the first cryptocurrency that was launched, it has maintained its number one position over the past years. 

Apart from a substantial market cap. Bitcoin can be considered less volatile compared to newer cryptocurrencies. Additionally, its high total value locked makes it a good coin to consider for beginners looking to buy cryptocurrencies.

Ether (ETH)

Ethereum (ETH), has held the second position by market cap for years. However, ETH’s market cap of about $294 billion is still less than a fourth of BTC’s market cap. 

Ethereum blockchain’s unique value is in enabling smart contracts and the development of decentralized applications. 

The blockchain is aimed at enabling the creation of a suite of decentralized and inclusive financial products and services. 

Tether (USDT)

As of October 2024, Tether USDT has the third-largest market cap at $119.7 billion. USDT was one of the first stablecoins ever created and is considered the most popular stablecoin.

Stablecoins are alternative crypto pegged on the value of fiat such as USD or on other external assets to counter volatility.

Launched in 2014, USDT allows users to transact on the blockchain while minimizing the complexity and volatility associated with cryptocurrencies.

Binance Coin (BNB)

Currently, Binance coin has a market cap of about $82.7 billion; making it the fourth crypto. Binance coin is the native token of the Binance Exchange; a crypto trading platform.

BNB functions as a utility crypto used for payment of fees charged on trades within the exchange. 

Today, Binance Exchange is one of the crypto trading platforms with the highest number of users.

Solana (SOL)

Solana (SOL) is the crypto that runs on the Solana blockchain. Currently, SOL has a market cap of about $68.4 billion; taking the fifth position by market cap.

Solana was founded in 2017 to provide a platform that supports decentralized applications. 

Solana enables more transactions per second compared to Ethereum. It also charges lower fees. These two advantages have earned it the name “Ethereum killer”.

How to buy, store, and use cryptocurrencies

If you decide to explore crypto investment, you have to conduct extensive research and carry out your due diligence. When evaluating a cryptocurrency to buy, consider:

• Project details

• Your investment goals

• Your risk profile

How to Buy Cryptocurrencies

• Choose an Exchange or a Broker

You can either choose to purchase cryptocurrencies through an exchange platform or a broker. 

• Crypto exchanges like Binance, and Coinbase enable fast buying and selling of crypto. But these platforms are often overwhelming for new crypto investors.

• Crypto brokers simplify the process of investing in crypto. But some may charge high fees. Sophie.fi is currently one of the best beginner-friendly platforms if you are looking to buy cryptocurrencies.

  
  

• Set Up an Account

After choosing a platform, you’ll need to create an account. Often, this step requires providing personal information and verifying your identity. Verification may require a passport, national ID, or driver’s license and a photo of your face.

• Add Funds to Invest

Before you start buying cryptocurrencies, you have to add funds to your trading account. There are various methods of adding funds to your account including wire transfers, credit or debit cards, and online payment platforms such as Google Pay and Apple Pay. 

The time it takes for your funds to be available on the trading account depends on the chosen method of transfer and the chosen trading platform.

• Initiate Your Cryptocurrency Transaction

When your account has available funds, you can start buying cryptocurrencies. Most exchanges allow you to search for the cryptocurrency you would like to buy. Then you can enter the amount you are willing to spend and choose the buy option.

Some exchanges allow for the purchase of crypto for as low as $10. This ensures that individuals without huge capital can start trading crypto as well.

Remember, crypto investment involves risks like any other investment. Ensure you conduct research and understand each crypto asset before purchasing.

How to Store Your Cryptocurrency

If you buy cryptocurrency through a broker or an exchange, your crypto is usually stored in a cryptocurrency wallet linked to your account. 

However, you can also transfer your cryptocurrencies out of the exchange to a separate cold or hot wallet.

Cold wallets: are crypto wallets that are offline; and disconnected from the internet. Examples are hard drives and USB. Cold wallets are considered the most secure crypto storage. However, if you lose associated keycodes or the device fails, you lose permanent access to your cryptocurrencies.

Hot wallets: are all crypto wallets that operate on the internet. They are more convenient but have a higher risk of theft.

Cryptocurrency use Cases

How can you use cryptocurrency? Today, cryptocurrencies have several uses; which keep increasing as more crypto projects are launched. The most common uses are investment assets and a payment mode. 

Some of the other uses of cryptocurrencies include:

• Cross-border money transfers and payments

• Online shopping

• Peer-to-peer transactions

• Supporting a blockchain network

• Yield farming for profits

• Tipping creators you like.

The potential benefits and risks of cryptocurrency investment

Cryptocurrencies can be a good asset for investors who enjoy speculative investments and can risk losing all the invested funds.

Benefits of investing in cryptocurrency

• High return potential

Despite the volatility, cryptocurrencies have shown potential for massive returns. Bitcoin (BTC) for example has grown from a price of $0.00099 in 2009 to currently trading at about $67,000. Individuals who have invested in and held Bitcoin for years record massive returns.

• Lower fees and faster time

Crypto transactions have extremely low charges compared to traditional banking systems. Additionally, crypto transactions are very fast, one can transfer money globally in minutes.

• Independence

Cryptocurrencies are decentralized by design, eliminating the control of a single entity such as a government. Investors have unrestricted access to crypto assets, with full control. But each user is responsible for their safety.

• Transparency

Crypto operated on blockchain; which is immutable and public. Every transaction can be seen and tracked by everyone.

Risks of Investing in Cryptocurrencies

Apart from the market risks experienced with speculative assets, crypto assets pose additional risks that crypto investors have to consider:

• Regulatory risk: 

The crypto regulatory environment is still unclear. A sudden crackdown can cause marketwide price change or difficulty in selling a particular crypto coin. 

• Counterparty risk; 

Individuals and businesses rely on third-party custodians to store their cryptocurrencies. Loss or theft can result in one losing all their investment.

• User risk: 

Unlike in traditional finance, crypto transactions cannot be reversed; if you send crypto to the wrong address, you’re likely not to recover it. 

• Volatility risk: 

Cryptocurrencies are very volatile with sudden price surges and drops. One can lose millions in seconds due to a sudden price drop.

What Does The Future Look Like for Cryptocurrencies

The future of cryptocurrency is defined by speculated growth, integration into more real-life use cases, and maturation. 

The crypto industry and enthusiasts are continuously working on improving the security and functionality of blockchain technology.

Regulatory compliance and environmental impact continue to be some of the most significant aspects of the crypto space. 

More developments are expected in the decentralized finance (DeFi) industry; especially with the growing popularity of tokenized real-world assets (RWA). 

The future of cryptocurrency promises a more efficient, inclusive, and interconnected financial ecosystem. Developers, stakeholders, and regulators will collectively impact the future of crypto. 

Ready to get started with cryptocurrency? 

Are you looking for the best and easiest way to start investing in cryptocurrencies? Join Sophie.fi, and start investing without the struggle of having to make crypto purchase decisions alone. 

Continuous learning is a crypto investor’s number one tool for succeeding in the crypto market. Some of the best crypto learning sites include Binance Academy, Coinbase Learn, and Cointelegraph.