What is cryptocurrency?
Cryptocurrencies are a kind of digital money that are kept secure through various cryptographic techniques. Today, there are thousands of cryptocurrencies, hundreds of which are regularly traded as speculative investments on online exchanges.
Understanding the basic fundamentals of why these assets were created, how they are governed, and why they hold value is important when deciding whether or not to redeem your Brex points for either asset.
Like traditional forms of money, cryptocurrencies aim to be a method of storing and transferring value. However, unlike fiat currencies (like the US dollar), cryptocurrencies don’t require a central body like banks or governments to police the system. This is because cryptocurrency networks like Bitcoin and Ethereum are “decentralized” thanks to tech innovations like the blockchain.
Being decentralized means that these networks are not controlled by any single entity and don’t have a single point of failure. Anyone can participate by buying cryptocurrencies on an exchange or by becoming a miner—earning crypto rewards for verifying new transactions and helping to keep the system running.
What kinds of cryptocurrencies are there?
Bitcoin and Ethereum were the first movers in the space and are widely considered to be the two foremost cryptocurrencies of choice—partly because of their unshakeable position as the top two crypto assets by market capitalization (price multiplied by circulating supply) and partly because they carry the greatest support and adoption from developers, payment gateways, and crypto exchanges. You can learn more about the differences between Bitcoin and Ethereum here.
Since Bitcoin was released more than 10 years ago, there have been many developments to bring about new cryptocurrency products that offer better useability and new features.
There are literally thousands of other crypto assets available today, with new ones being developed and released each day. Commonly referred to as “altcoins,” these cryptocurrencies are often very different in design, implementation, and use case—ranging from decentralizing file storage as seen with Filecoin to powering the world’s Internet-of-Things (IoT) devices as seen with IOTA.
Because this industry is constantly evolving and we’re still in the early days of development, it’s important that people interested in cryptocurrencies continue to educate themselves about this asset class.
Why were cryptocurrencies created?
The exact use and purpose for each new cryptocurrency varies based on the type of coin it is, but they can generally be described as a store of value that:
__- Can be quickly transferred between parties anywhere in the world. This is particularly useful for making cross-border payments, for example, where traditional infrastructure can be expensive to use and may take days or weeks to process.
- Does not require a centralized intermediary to coordinate payments or uphold network security. Crypto networks are usually jointly operated by the community, so there is no single point of failure.
- Allows users to transfer between geographies with less foreign exchange (FX) or currency risk, requiring less insurance and international banking coordination.__
Cryptocurrency projects can vary greatly in their implementation, each with its own set rules and parameters that define how the network should operate—based on the exact purpose or problem the currency is trying to solve. This is usually documented in a public-facing document called a white paper.
Do cryptocurrencies have value?
Cryptocurrency markets are well known for their price volatility. However, this is to be expected and, for many crypto holders, price volatility is the main attraction. In general, it is worth remembering that crypto is a relatively young market when compared to mature markets and traditional exchanges that have existed for hundreds of years.
Analysts on both sides of the debate make great arguments for whether or not cryptocurrencies have true value beyond price speculation. Among the most compelling are:
- The fact that cryptos do not have physical utility like gold or oil (i.e., they cannot be used to make jewelry or provide fuel)
- The supply of new cryptocurrencies are controlled programmatically to protect investors against inflation and ensure scarcity.
One thing is certain though: an asset is only worth as much as someone else is willing to pay for it. There is clearly a sizeable market and demand for crypto assets today though, with cryptocurrency trading volumes (the total value of cryptocurrencies bought and sold) regularly reaching above $1 billion daily.
The crypto landscape is constantly evolving. As new use cases are discovered, applications are developed, and businesses continue to adopt it for payment settlement—we should expect high price volatility and high innovation. Find out how you can get started with cryptocurrencies or learn how you can redeem your Brex points for crypto rewards.