From Bitcoin’s launch in 2008, the cryptocurrency economy has come a long way, reaching a size of USD 2 trillion in 2021. Significantly fuelling its rise was the potential for gains from making trading gains from it.

This trading, in turn, has been made possible by an increasing number of brokers providing the option of buying and selling cryptocurrencies. A large number of crypto options have also mushroomed providing the opportunity to dabble in trades across coins. Coinbase, a crypto exchange, even got publicly listed in 2021.

As a result, there is growing acceptability for cryptocurrencies. El Salvador now recognises it as legal tender, for example. Even merchants are increasingly allowing payments for their goods and services in cryptocurrencies.

What are cryptocurrencies?

Despite their popularity though, given the still relative newness of cryptocurrencies, it bears explaining what they really are. Like all other currencies, the goal of cryptocurrencies or digital currencies is to facilitate buying and selling.

However, unlike other currencies like the US dollar or the British pound, they are not regulated by any authority. Also, unlike physical notes and coins associated with regular currencies, cryptos are entirely digital. Blockchain technology forms their basis, which records every transaction associated with these currencies.

Key crypto terms

These unique facets make cryptocurrencies a very different world from the usual currency market. As can be expected, there are specific terms associated with it as well. Here are some of the key ones.

1. Mining: A term used for generating fresh digital coins by guessing a 64-character combination that doesn’t already exist. A miner generating these new coins in effect creates a new coin, which adds to their earnings.
2. Crypto wallets: Much like regular wallets, crypto wallets are meant to store cryptocurrencies. They can be both offline, like flash drives or hard drives, or in the digital format.

1. Cryptography: This is a digital method used to keep cryptocurrency related information secure. This information looks like a jumble of characters but reveals itself with the right passwords.

1. Distributed ledger: With cryptocurrency transactions taking place all the time all over the world, it’s essential to keep track of them. This is done via the distributed ledger, which relies on the blockchain technology. Think of it as some version of a bank that keeps all of customers’ transactions in a traditional ledger. Except in this case, there’s no specific entity carrying it out.

How cryptocurrency can be used

Armed with knowledge of what cryptocurrencies are and the key terms to know, the next question is, how to use them.

Making payments

As was mentioned at the beginning, these currencies are now increasingly accepted by vendors. Notable among these are big companies like PayPal, Microsoft and Starbucks. But there are other uses too, with many now opting to pay for their favourite games with cryptocurrencies such as bitcoin. Many video game providers now accept cryptocurrencies including many key online casino brands. The online gambling industry has become accepting of the use of cryptocurrencies, as more players prefer the security and privacy that crypto payments offer, especially when paying for casino games.

Overseas transfers

Significantly, digital currencies are a fast and convenient way to transfer funds overseas. Companies like Circle and P2P technologies allow for these transactions. These can be used to make payments to your business team. Or if you live abroad, send money back home to your family.

Financial trading

Then there is the investing option. Much like foreign exchange markets or stock markets, you can trade in a host of digital currencies.

It needs to be added here, though, that care needs to be taken when trading in cryptocurrencies. More than other financial markets, cryptos tend to be volatile because it is still a new industry.

Risks to cryptocurrencies

They also face the risk of being banned by authorities in various countries. Their risks have been pointed out by central banks. Christine Lagarde, President of the European Central Bank is one such individual. She has said, “There is no underlying asset to act as an anchor of safety” for them. This is in contrast with regular currencies, which have the assurance of value from central banks.

Still, people around the world are still drawn to the possibility of making gains from trading in them. There are also gains to be made from mining them. In fact, there are entire companies like the London headquartered Argo Blockchain that are dedicated to mining digital currencies.

Try them out, with care.

The key point emerging here is that cryptocurrencies are the future. They are far more convenient to transact in than regular currencies, are secure and all transactions in them are recorded forever.

They are increasingly accepted by the biggest global vendors. And they are actively used as assets to trade in, like in any other financial market.

However, the cryptocurrency economy of the future can look very different from what it is today. Governments around the world are increasingly veering towards digitising existing currencies. The day might not be far when we have digital dollars and pounds.

What this means for existing digital currencies like Bitcoin is unknown. Central banks have expressed concerns about their unregulated nature. They can conceivably lose all value and they tend to be rather volatile too.

Still, cryptocurrencies regularly draw people in, especially with the promise of making profits. While it is possible, the risks are equally relevant too.