There is much crypto knowledge flowing around every single day and this becomes challenging because you need to know what information you can consume and if the source is trustworthy.
Here at Coins Academy, our mission is to pass on invaluable knowledge that can help you on your crypto journey. Who knows during this journey, you might find some golden nuggets that can give you additional knowledge that puts you ahead of your peers.
To ease you into the crypto world, we will start with the basics:
TABLE OF CONTENTS
- What is Cryptocurrency?
- What is Bitcoin?
- Difference between Web 2.0 vs Web 3.0?
- What is Ethereum?
- What are Smart Contracts?
- What are Fungible Tokens?
- What are Non-Fungible Tokens (NFTs)?
- What is Play-To-Earn?
- What is Move-To-Earn?
- Other ways to earn Income with Crypto.
- What determines the value of crypto?
- Keeping your crypto safe!
- Get Your Crypto Journey Started!
What is Cryptocurrency?
Also known as digital currency or virtual currency, a cryptocurrency is a digital asset that can be used to exchange for goods and services or in place of a contract. This digital asset is secured by cryptography, making it nearly impossible to counterfeit or hack.
Most cryptocurrencies are decentralized networks based on distributed ledgers made up of several different computers (blockchain). Their encrypted and decentralized characteristics make most types theoretically immune to manipulation and interference.
The most popular cryptocurrency that you would probably have heard of is Bitcoin. However, there are other Cryptocurrencies like Ethereum, SHIB, USDC, and many more. But for now, let’s keep it simple and short.
What is Bitcoin?
Bitcoin is a decentralized digital currency that can be sent without the need for a bank or intermediary through the use of blockchain technology. It was first described in the Bitcoin Whitepaper, a document released in 2008 by a person known as Satoshi Nakamoto.
While Nakamoto’s true identity has never been revealed, the document that Nakamoto left us with outlined the principles of a truly peer-to-peer payment system not controlled by any singular government or corporation.
Since it’s a peer-to-peer system, there has to be a consensus mechanism to verify that transactions are legitimate and documented on the blockchain which is immutable. In Bitcoin’s case, it uses a consensus mechanism called Proof-Of-Work(POW), which coined the term “Mining”. In this case, computers (miners) are used to solve cryptographic puzzles, and the miner that solves the puzzle the fastest gets rewarded in Cryptocurrency.
There are other cryptocurrencies that use other consensus mechanisms like Proof-Of-Stake or Poof-Of-History as consensus mechanisms to verify and process transactions on the blockchain.
Web 2.0 vs Web 3.0?
The internet that we know right now is Web 2.0, which is the ‘read & write’’ web. As users of the internet, we can read information like how you are reading this article, we can also write information like uploading photos, sharing blog posts, and much more.
However, all this is done through a 3rd party or a company like Meta, Google, or Twitter, which gives these companies the power to restrict or ban users from using their products or services.
What Web 3.0 hopes to do is to move the power from a centralized company towards a decentralized environment where it is resistant to censorship, has no single point of failure, and is permissionless, allowing anyone to get access to services that were not available to them before.
For example, to open a bank account, there will be prerequisites like having a minimum amount of money and providing an address and other personal information.
However, with Decentralized Applications (DApps), one can get access to Decentralized Finance (DeFi) applications to get a savings account, insurance, and even trading.
In the next segment, we will be diving into the types of tokens that you will encounter on your crypto journey.
Bitcoin is probably something you would have heard people talk about all the time. However, there are more than 4,000 different cryptocurrencies each of them with a different utility, community, and different use case in our world.
What is Ethereum?
Ethereum is the first crypto that enables other developers to build smart contracts and paved the way for many crypto projects that we see today.
Fun Fact: Ethereum was also using Proof-Of-Work Consensus Mechanism, but switched Proof-Of-Stake which reduced energy consumption by 99% when they did “The Merge”.
What are Smart Contracts?
Comparing Bitcoin and Ethereum, one can say that Bitcoin is the king of cryptocurrencies while Ethereum is the King of Smart Contracts.
Smart Contracts might sound like a complex word with a lot of tech in the background, but in simple terms, one can think of a smart contract as a vending machine. When you put P100 into the machine for a canned drink that cost P60, the vending machine will dispense your drink and return you P40.
That’s the basic idea of the vending machine, which replaces a human cashier who might give out the wrong change, steal the money from the till or even give the wrong item to the customer. A smart contract in this case is coded and tested before being launched on the main net for public use.
The introduction of smart contracts led to the birth of great projects like UniSwap, AAVE, and 1inch, but most importantly, it led to the birth of NFTs which created a source of income for many users in different countries.
What are Fungible Tokens?
Most tokens that we have are considered fungible tokens, which means they are replaceable themselves. Like how P100 note is interchangeable with other P100 notes. The value tagged to the note is the same regardless. The same would be true for crypto like Bitcoin, Ethereum, Uniswap etc.
1 Bitcoin in your wallet is valued the same as 1 Bitcoin in my wallet in that sense.
What are Non-Fungible Tokens (NFTs)?
Non-Fungible Tokens on the other hand are tokens that are not replaceable themselves because they are unique to themselves. You might have probably heard of people buying an ape picture for tens of thousands of dollars because they are rare and hard to get, those are the NFTs that we are talking about.
So if you think of NFTs a real-life example of it would be the Mona Lisa. There’s only 1 Mona Lisa in the world which is in the Louvre Museum, in Paris. Any other Mona Lisa you see elsewhere is probably a fake piece.
The birth of NFTs has helped creators earn royalties without the need to go through an auction house like Sotheby's and Christie’s which charges a hefty fee to list or sell an art piece. Creators and artists can now leverage NFT Marketplaces like OpenSea, MagicEden, X2Y2, and LooksRare to launch a collection, and users can buy and sell their NFTs collections to other enthusiasts as well.
Which NFT to purchase?
Looking at any NFT Marketplace, you will notice that there are many different NFT collections which is daunting when it comes to selecting which collection to purchase or invest in.
When selecting the NFT collection to purchase, there are a few things like utility, community, founding team, and a strong roadmap that come into consideration.
NFTs were first coined in 2014 and the first NFT game Crypto Kitties was launched in 2017 but the whole NFT industry only experience a breakthrough in 2021 with projects like Bored Ape Yacht Club, Crypto Punks, and CyberKongz making a name in the space.
Though many NFTs right now do not have much utility, some projects manage to gamify NFTs by introducing a whole new economy called Play-To-Earn.
What is Play-To-Earn?
One of the biggest play-to-earn games is Axie Infinity which is NFT-based. Axie Infinity is a turn-based card game where players battle their NFT with one another to earn cryptocurrency AXS and SLP. Both these currencies can be converted into cash, providing many a source of income, hence the term play to earn.
Players can also trade NFTs to earn income. These NFTs can be game characters or in-game items which have stats and gives an additional boost to players who own them.
The success of Axie Infinity led to many other games like Plants vs Undead, MetaDerby, and many more, but most importantly, it sparked another economy called Move-To-Earn.
What is Move-To-Earn?
The Move-To-Earn economy picked up in 2022 with projects like StepN, Step App, and Genopets providing means for users to earn money while going about their daily lives.
The Move-To-Earn economy works in a different way from Play-To-Earn, instead of battling and completing quests in a game, in the Move-To-Earn economy, users accumulate steps by walking, running, and jogging. The steps accumulated can then be used to improve NFTs, converted to other cryptos, or used for other in-game functions but this varies from game to game.
On top of that, some projects allow users to earn cryptos not only via moving or playing the game, one can consider staking which is another form of earning an income with Crypto.
Other ways of earning income with Crypto?
One of the easiest ways to earn additional income from crypto is by staking. Staking is a process of pledging your tokens to support the network through a consensus mechanism called Proof-Of-Stake. In return for supporting the network, stakers will receive cryptocurrency as a reward, which means you can earn some passive income just by holding your tokens in a wallet or validator.
What determines the value of crypto?
With all this information about earning crypto, one must wonder how cryptocurrencies get their value.
There are a couple of metrics that one can look at, like scarcity, cost of mining, and utility of the token. In short, the more scarce the token, the higher the price of the token. Like there will only be 21 million Bitcoins in the world and when more people own Bitcoin, it makes it harder to own Bitcoin, which drives the prices up.
At the same time, if a token has multiple use cases, this will also cause an increase in price because more people using the tokens will induce buying pressure for the token.
Keeping your Crypto safe!
Since we can earn different types of tokens in the crypto space, keeping your crypto safe is of utmost importance because as the space becomes more mainstream, there will be bad players who can and will try to get to your hard-earned tokens.
There are 3 categories of crypto wallets that one can use which are Paper Wallets, Software wallets, and Hardware Wallets. Each of these wallets has its own pros and cons which will suit different users based on their needs and the level of security that they require.
As a rule of thumb, it’s not wise to keep the majority of your crypto on a centralized exchange because you do not own the private keys to that wallet which limits the control you have over your funds.
Get Started!
So we got you all up to speed on what you need to know about cryptocurrencies. As the crypto space is ever-changing with technologies improving every day and new projects with interesting solutions to our world, one has to be up to date to see the endless possibilities that the crypto space brings.
Coins Academy is a curated content library where you can find information about cryptocurrencies at your fingertips.
Disclaimer: The information and publications in this article are not intended to be and do not constitute financial advice, investment advice, trading advice, or any other advice or recommendation offered or endorsed by Coins.
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