Decrypting crypto: ten things you need to know if you’re confused about crypto
Crypto as an investment tool is growing exponentially in Australia. Over 1 million Aussies now own at least one cryptocurrency, with even more users tapped to enter the market within the next year.
Investing in crypto, however, looks quite different to the trading floors you might be used to seeing in the financial news or even in Hollywood movies like The Wolf of Wall Street. The process of buying and selling crypto is conducted entirely online and designed to be accessible to everyone.
But with crypto’s rising popularity, terms like ‘bitcoin’, ‘cryptography’ and ‘blockchain’ are dominating news-feeds and conversations with friends and family – leaving many Aussies confused.
James Logan (pictured), Country Manager for Luno Australia, a leading global cryptocurrency investment app, explains some of the basics for those looking to dip their toes into crypto waters.
- What is cryptocurrency?
“So first up, what actually is Cryptocurrency? It’s essentially a digital form of currency. But unlike the dollars you have in your online account, which are largely controlled by banks, crypto exists through a technology called ‘blockchain’.
“Crypto is one of the most popular digital assets in existence. Asset meaning anything you own that has economic value like cash, buildings, or artwork. Most people decide to buy, sell, and trade crypto assets securely on exchange platforms that act as a digital marketplace.
- What can I do with cryptocurrency?
“People use cryptocurrency for a number of reasons. Cryptocurrencies are slowly but surely being integrated into traditional marketplaces and can be used to buy goods and services. With many merchants – both online and offline – now accepting Bitcoin.
“The decentralised nature of Bitcoin removes the need for a middleman, allowing users to send money to friends and family or make purchases online, much faster, and cheaper than using local currency.
“Cryptocurrency is also seen as an investment opportunity.
- How do I invest in crypto?
“If you’re considering investing in crypto, it’s imperative you do your own research through crypto forums, news sites and exchange platforms, who often provide beginner friendly guides like Luno Discover. It is important you feel confident and fully informed before you start investing.”
“Once you feel like you are ready, the easiest way to buy crypto is through an exchange. Funds can be deposited into the exchange through bank transfers or debit cards, and converted to crypto within the app. Most beginner friendly exchanges have apps that will guide you through each step of the process.
- What is the difference between cryptocurrencies?
“There are over 20,000 different cryptocurrencies in circulation. That can seem like a minefield – especially when compared to the different types of physical currency in circulation, like the Australian dollar or the British pound, of which there are only 180. You will no doubt have heard of the most popular coins, Bitcoin and Ethereum.
“Each coin has different utilities and perceived value. You may have heard about different cryptocurrencies rising and falling in value. While you can’t control the market, some coins are considered more secure than others. There is an abundance of resources and advice readily available to help you decide which coin to start investing in. Be it online through forums and news sites or via more traditional channels like a financial advice service.
- What is blockchain?
“Blockchain is the foundational technology on which the majority of cryptocurrencies, like Bitcoin and Ethereum, are based. Simply put, Blockchain is a type of database that serves as a permanent record for information, including digital transactions.
“Think of it like a Google doc that everyone has access to. This means everyone can see when a change has been or will be made. They also have a say on whether these changes should be confirmed. All in all, it’s an incredibly secure system with layer upon layer of security and identification features.
- What is Bitcoin?
“Bitcoin is the first and most valuable cryptocurrency. You’ll often hear it referred to as a ‘decentralised currency’ meaning its value is not controlled by a central entity like a bank or government. Instead, Bitcoin is managed and controlled by a global network of computers that do the heavy lifting by verifying and approving all transactions.
“Transactions using Bitcoin are verified in a process known as ‘mining’.
- What is Bitcoin mining?
“Because everyone has access to blockchain technology, new coins can be developed at any time. Bitcoin mining is the process of creating new coins and verifying transactions. Once a batch of transactional data is approved, a ‘block’ is added to the blockchain. Much like popular game shows on the TV, ‘miners’ compete to solve mathematical problems using specialised computer systems, the first miner to solve the puzzle adds the block and is rewarded with new Bitcoin.
- Why was Bitcoin invented?
“Bitcoin was originally created in 2009 as a digital version of money. While it wasn’t the first attempt at creating a digital currency, it has been the most proliferated and successful. Its value is derived in large part because of demand, and how difficult it is to counterfeit.
“Bitcoin creator, Satoshi Nakomoto wanted to ensure the currency spoke to the laws of supply and demand. His code instructs that no new coins can be created once circulation reaches 21 million, this is expected to happen sometime around the year 2140. As of this moment, 19 million Bitcoins have already been mined.
- Is crypto secure?
“Cryptocurrencies are secured using a process called cryptography. Cryptography is the use of techniques for secure communication and access – allowing only the sender and the intended recipients of a message to view its contents. Think of it like encryption, where ordinary text is scrambled and can only be read by those who know how to put it back into its original form.
“Thanks to this extremely secure transactional network, forgery and other criminal activities are extremely hard to get away with.
- Is crypto used for illegal activity?
“This is quite a common misconception, the belief that because crypto is stored online this opens the system up to a whole host of criminal or illegal activity, more so than physical networks. That couldn’t be further from the truth, unlike closed off trading rooms in the financial world, Bitcoin transactions are transparent for the world to see.
“Like with any financial system, the risk of bad behaviour cannot be entirely eliminated, only mitigated. The fact is the crypto industry is equipped with unique tools that help effectively deter criminal activity, and in some cases they do it better than existing systems.”