Cryptocurrency: What is it and what does it mean for me?

This is our first instalment of crypto basics. In this series, you'll learn about what crypto is, altcoins, withdrawals, wallets and deposits, and more.

"But what is it?" You've either asked it or been on the receiving end of this question. So why is it so difficult to explain?

But first, a reminder

While we believe that crypto should be accessible to all, we also know that crypto trading isn’t for everyone. The prices of crypto can be very volatile, which means there are always going to be risks involved when buying or selling crypto. Past performance isn't an indicator of future performance, and cryptocurrencies are unregulated. Your capital is at risk, so please consider your personal circumstances and do plenty of research before getting involved.

Cryptocurrencies explained

Cryptocurrencies are a form of virtual or digital money, where every process they undergo is encrypted.

Cool, seems simple enough. But there's always that one person asking "well, isn't all money kind of like that these days?" Sure - we use increasingly digitised forms of payment like bank cards, our phones, and digital wallets, but they all work with fiat currency. Whether that's your £, $, or €, those are all fiat currencies, issued and controlled by the government in a nationally centralised system.

The big draw of cryptocurrencies is that they're decentralised, and use different technology to traditional money.

Let’s start with the tech and break down into two parts - crypto and P2P.

How cryptocurrencies work

The crypto part of cryptocurrency is the encryption of all the processes that take place within the crypto universe. This means they’re secured end-to-end, and transfers can be trusted and traced back through their network. No chance you’ll spend money twice or have it go missing (unless you lose or forget the key to decrypt it).

While this technology can make sure that transfers within a cryptocurrency are secure, it can’t protect the value of cryptocurrency. A cryptocurrency’s value is almost always determined by the supply and demand of the cryptocurrency in the market - this is why prices can be so volatile and go down, as well as up, much faster and with bigger swings than a fiat currency.

Making P2P payments with crypto

P2P has been around since the dawn of the internet. At its most basic, this just means two people interacting directly with each other, without a third party facilitator. In crypto, transactions between wallets work on this principle.

This could benefit all of us around the world, because the way society works has evolved, but the way money works hasn't. In an ever more connected world, communication moves fast, but money moves pretty slowly, and it's often expensive. Cryptocurrencies have the potential to solve those problems, and create a more equitable money system for the whole world. Sounds pretty idealistic!

Cryptocurrencies could make any type of payment almost instantaneous, cheap, secure, and straightforward. That includes international transfers, which usually happen through a bulky process called SWIFT. (The name is a bit ironic, right?)

There are also more than 2 billion people on the planet who aren't able to set up or access bank accounts, for a variety of reasons. Cryptocurrencies could be one solution to help them get access to international financial technology.

Moreover, cryptocurrencies aren't controlled by any one person or collective, the way that fiat currencies are. Some people say that this means we could solve lots of the problems that arise from centralised currencies like hyperinflation and corruption - but the jury's still out on this one.

This article doesn't aim to provide financial advice. Please do your own research before committing to a purchase or sale. Nomics will give you updated data on all of our tokens. If you're unsure, please consult an independent financial advisor.