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What is Cryptocurrency?

Cryptocurrency is a type of digital or virtual currency that uses cryptography for security. Unlike traditional currencies, cryptocurrencies are decentralized and typically operate on a technology called blockchain, which is a distributed ledger maintained by a network of computers (called nodes). This means that cryptocurrencies are not controlled by any central authority, such as a government or bank.

Ownership of cryptocurrency is instead determined by private keys, which are cryptographic keys that give users control over their coins. Only the person with access to the private key can send or spend the cryptocurrency.

How does cryptocurrency work?​

Cryptocurrency works through a combination of blockchain technology and cryptography.

Blockchain - A blockchain is a network designed for storing databases. It differs from a more traditional digital database by being distributed across multiple nodes in a network, rather than being overseen by a singular entity.

Cryptography – A method of using mathematical algorithms to help secures online transactions, send encrypted messages, and verify digital signatures.

Mining and Validation - In many cryptocurrencies, new transactions need to be validated and added to the blockchain. This is done through a process called mining.

Community Incentives – Validation actions are incentivized with financial rewards to make sure that all transactions are legitimate and prevent fraud.

Together these pieces form a payment system that is decentralized, highly secure and widely accessible.

Benefits of using cryptocurrency​

Pseudonymous - Cryptocurrencies allow users to conduct transactions without revealing their personal details. This can be important for people who value privacy in their financial dealings.

Speed - Cryptocurrency transactions are typically faster than traditional banking systems, especially for international transfers. You don’t need to wait for business hours or deal with time zone differences.

Global reach - Cryptocurrencies can be sent and received anywhere in the world without needing to rely on banks or financial institutions that may not be available in certain regions.

No central authority - Cryptocurrencies are typically decentralized, meaning there is no single institution (like a bank or government) controlling the currency. This reduces the risk of government interference, inflation, or centralized control over your finances.

Financial Inclusion - Cryptocurrencies can be used without needing a bank account or credit history. This means anyone, regardless of location or financial status, can access crypto with just a smartphone and an internet connection.

Secure transactions - Cryptocurrencies use strong cryptography to protect transactions. Once a transaction is added to the blockchain it’s public and nearly impossible to alter, making it highly secure against fraud and hacking.

Types of cryptocurrencies​

While the possibilites and uses of cryptocurrencies is limited only by what users and developers can think of, there are three main types of cryptocurrencies you’ll generally hear about and encounter early in your DeFi journey.

Payment Cryptocurrencies​

Examples: BTC, ETH, SOL, LTC

Payment cryptocurrencies are digital currencies created for use in everyday transactions, both online and in physical stores. Intended to be used directly as a medium of exchange like traditional money (though they can have additional features), payment cryptocurrencies have the added benefits of being decentralized, secure, and fast.

They also offer features such as lower fees, faster processing times, and global accessibility, but can face challenges like volatility and scalability issues.

Stablecoins​

Examples: USDT, USDC, CADC

Stablecoins are cryptocurrencies designed to maintain a stable value by being pegged to FIAT assets like the US Dollar. They offer the benefits of cryptocurrencies (security, fast transactions, low fees) without the wild price fluctuations that come with most other digital currencies.

Memecoins​

Examples: DOGE, SHIB,

Memecoins are cryptocurrencies that are created as jokes or based on internet memes and pop culture. They typically have no serious utility, and their value is driven primarily by community hype, social media, and speculation. While some, like Dogecoin, start as a lighthearted or satirical projects, they can gain significant popularity and even serious market value due to community interest and social media trends.

Other uses for cryptocurrencies can include:

  • Infrastructure (for support blockchain technology)

  • Financial (equivalents to IRL financial products such as futures or options)

  • Service (data file storage)

  • Entertainment (media tokens such as NFTs and more)

Summary​

Cryptocurrencies allow for fast, secure, and pseudonymous transactions, with benefits such as global accessibility, financial inclusion, and protection against fraud. They can be used for a variety of tasks from payments to entertainment and beyond.

Whether you think crypto is just a flash in the pan or the next big revolution in tech, it’s here to stay.

WonderFi Labs is focused on making crypto accessible to everyone by creating Wonder Wallet, a DeFi wallet that is frictionless and easy to use. We invite you to check out the Wonder Wallet today!