As of April 2021, the cryptocurrency market is worth more than 2 trillion USD. A lot, right?

Flaticon IconBut if you haven't been following the market closely, it can feel hard to jump in now. There's a lot of buzzwords.

dorothy overwhelmed by crypto jargon

So let's start with the basics: what is cryptocurrency and how does it work?

What Is Cryptocurrency?

  • Cryptocurrency takes the form of digital assets

  • Buyers use money to buy assets (or a part of an asset)

  • Buyers than exchange the assets online for goods or services

south park character taking casino tokensThink of an asset like a chip at a casino.

When you get to a casino (or Chuck E. Cheese, if that's more your vibe), you exchange your money for chips. You can then use your chips to play the games.

In this case, the casino chips are the assets, and the games are the good you are purchasing.

How Does It Work?

  • Transactions are verified using Blockchain

  • Blockchain transactions are decentralized, meaning they're spread across many computers to manage and record transactions

  • Because Blockchain transactions rely on many computers, they are considered more secure than centralized currencies

Circuit breaker

How does decentralization = more security?

  • A decentralized network, like blockchain distributes risk. So if one part of it is hacked, it doesn't put the rest of the system in jeopardy.

  • To think of this simply: imagine the circuit breaker in your house. If a circuit blows, you might lose power in one room, but not the others.

What Gives Cryptocurrency Value?

Like any non-fungible token (NFT), cryptocurrency gets its value based on what people are willing to pay for it.

It's similar to fine art or real estate. The value of a cryptocurrency will go up or down based on how much demand there is for it.

Simpsons riding on graph rollercoasterFor example...

  • Housing prices across the U.S. fell by an average of 33% during the 2008 recession. By 2018, they had rebounded and increased by more than 50% 🏘️

  • Monet died poor even though he had lots of paintings to sell, but now the average price of one of his paintings is about 7 million USD 🎨

  • The price of dogecoin, a cryptocurrency, dropped by 35% after Elon Musk called it a hustle 🐕

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This Byte has been authored by

SZ

Sam Zimmer

Rumie Director of Learning