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INDEX

What this article covers:

1. What is a cryptocurrency coin or token?
o Definition
o Existence on the blockchain
o Examples (Bitcoin, Solana, Ethereum)

2. Using Cryptocurrency
o What is an exchange and how do I get cryptocurrency?

3. Proving Ownership & Access
o How do I prove ownership?
o What is a key?
o Isn’t there also a secret phrase?

4. Understanding Value
o What are people buying if it’s non-physical?
o Why does the price go up and who is getting all the money?

5. Price Dynamics
o How does the price go up if it’s not physical?
o Advanced Insights
o Definitions (Technical Analysis, Order Book)
o Basic Explanation

6. Conclusion
o Trading risks and the importance of accredited training

MAIN ARTICLE

1. What is a cryptocurrency coin or token?

A cryptocurrency coin or token is a non-physical digital asset.

Where does it exist?
The coins exist on the blockchain, an online record of transactions that can be viewed publicly. The coins are associated with a user’s address (similar to an email address) and can be transferred when bought for cash, usually through an exchange.

Examples:
Bitcoin, Solana, and Ether each have their own blockchains. Bitcoin transactions are recorded on the Bitcoin blockchain, Solana transactions on the Solana blockchain, and Ether transactions on the Ethereum blockchain.

Advanced Insights:

• While most blockchains are public and can be viewed by anyone, some blockchains are private and restricted to certain users.

• Coins are not physically stored in an address. Instead, the address holds the cryptographic keys that control the coins.

2. Using Cryptocurrency

What is an exchange and how do I get cryptocurrency?
An exchange is a platform where you sign up for an account, similar to a bank currency exchange. You buy the crypto you want in exchange for cash. You get a coin, and they get cash.

Advanced Insights:

• In reality, you get a digital representation of the coin in your wallet, and the exchange or seller gets the cash.

3. Proving Ownership & Access

How do I prove ownership?
You can own digital wallets in the form of apps or a physical storage wallet for which only you have the keys to unlock.

Advanced Insights:

• Digital wallets can also be software-based (online or desktop wallets) and hardware wallets (physical devices).

What is a key?
A key is a long password that enables access to your wallet. You keep this secret.

Isn’t there also a secret phrase?
Yes, this phrase is like a key, except a phrase can unlock multiple keys in a single wallet.

Example: Imagine you have a physical safe with multiple compartments, each with its own key. Instead of carrying all the keys, you have a master key that can open all compartments. Similarly, a secret phrase (often called a seed phrase) can unlock multiple cryptographic keys within a single wallet.

4. Understanding Value

What are people buying if it’s non-physical?
What they own is the control over the coins associated with their wallet address.

Why does the price go up and who is getting all the money?
There is no stockpile of money because you are always just trading with someone. Exchanges charge a fee for trading, and you can use borrowing services where the lender charges. But you don’t have to. You can buy part of a Bitcoin for $10.

Advanced Insights:

• Exchanges do hold reserves of various cryptocurrencies and fiat currencies to facilitate trading and ensure liquidity. This means they can quickly process trades and withdrawals, acting as custodians of the assets.

• Bitcoin can be divided into smaller units called satoshis, making it possible to buy fractions of a Bitcoin.

5. Price Dynamics

How does the price go up if it’s not physical?
This gets tricky, but there is an explanation. It’s a combination of:

• Psychological effects of greed and fear by humans:

Example of Fear: When a Top 10 cryptocurrency project announces a new CEO, speculation of unfavourable shifts in mission or direction may lead to panic selling, which drives prices down.

Example of Greed: When a new technology or partnership is announced, people rush to buy, driving prices up.

• Predictions based on previous price action, similar to traditional stock market cycles (this is called technical analysis).

• The way an order book works.

Advanced Insights:

• Other factors like news, regulations, and technological developments can also influence prices.

Definitions:

• Technical Analysis: This involves using past price data to predict future price movements. It assumes that markets behave in predictable ways and that trends often continue in the same direction for some time.

• Order Book: An order book is a list of all pending buy and sell orders for a specific cryptocurrency on an exchange. It shows the prices at which traders are willing to buy (bids) and sell (asks) the cryptocurrency.

Basic Explanation: The price goes up if more people are placing orders or trades to buy the coin. The price goes down if more people are placing orders or trades to sell the coin for cash or another asset.

Think of it this way: If you are buying a coin with cash, the person on the other end of the trade is getting your cash. Similarly, if you sell a coin, you are taking the buyer’s cash as they are buying your coin.

The illusion of there being hidden growing cash is common, but it’s not true. The same amount of cash can buy one Bitcoin or 10, depending on whether the person holding the Bitcoin is willing to sell for that price. And that’s determined by:

• Psychological effects of greed and fear.

• Predictions based on previous price action (technical analysis).

• The way an order book works.

• Other factors like news, regulations, and technological developments.

6. Conclusion

Cryptocurrency offers an exciting new way to engage with digital assets, but it’s important to approach it with caution. Trading cryptocurrencies can be highly volatile and risky.

Before investing real money, consider seeking accredited training or resources to better understand the market dynamics and risks involved. Remember, informed decisions are key to navigating the world of cryptocurrency safely.

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