What Are Cryptocurrencies?

January 1, 2022

It’s not easy to define cryptocurrencies. Cryptos, as they’re commonly called, are used for much more than just money. This fact surprises many people when we say that.

Yes, money was the first use for cryptocurrencies and the blockchain technology [link to our article] it’s built on. But programmers have found countless other applications for this technology. These applications will drive demand for cryptocurrencies… And deliver profits to savvy investors.

We’ll circle back to these other uses for cryptos at the end. First, we need to understand the basics… 

Basics of Cryptocurrencies

It’s impossible to talk about cryptocurrencies and not mention the fact they started as currencies. Actually, talking about it as a currency makes it easier to define what a crypto is.

Cryptocurrencies are digital-only currency that is secured by cryptography. This encryption code, if written properly, makes it impossible to counterfeit or double-spend the currency. This is one of the reasons bitcoin is so valuable. Despite some nasty rumors in early 2021, it has never been double spent.

There’s no IOUs allowed on the bitcoin blockchain. There are no “check kiting schemes”. Only direct transfers from one wallet to another.

And because of the transparent nature of the blockchain, we know exactly which wallet address owns which bitcoin and when it owns it. What happens if someone tries to send the same bitcoin to two different people? The second transaction will not be approved by the miners that secure the bitcoin blockchain because it won’t be owned by the first wallet anymore.

We’ve written more about blockchains here [link again]. But for this article we just need to know the blockchains are a network of machines running the code for the cryptocurrency which is distributed across many computers. In other words, it’s decentralized.

This is the basis for all cryptocurrencies. It would be simple if that's all the cryptocurrencies were used for, but as we mentioned that is not the case. 

Alternate Uses

Bitcoin’s primary use-case is still as a currency. And that can be said about the meme coins like Dogecoin and Shiba Inu as well. At Genesis, we believe that in the future the coins that maintain or grow their value will have uses that go beyond just money.

Really, we should be calling these coins “cryptoassets.” Because that would more accurately reflect what they are.

Take Ethereum – the world’s 2nd largest of all cryptocurrencies by market cap – for example. Sure it’s used as digital money and for payments, but it’s also used to run applications.

Many decentralized finance applications run on the Ethereum blockchain. These include Uniswap which allows people to exchange one crypto for another. SushiSwap which does that but also makes it easier to be a market maker in the cryptocurrencies market. And Yearn Finance which makes it easy to stake your cryptocurrency to earn a little extra yield on your investment.

But many NFTs (non-fungible tokens) use the Ethereum blockchain as well. These NFTs are mostly digital pieces of art that people trade. You can go here to look at some of the Cryptopunks or Bored Ape Yacht Club NFTs which are some of the most popular NFT projects.

And even games are built on top of the Ethereum network. One of the more popular services is Axie Infinity which hosts several popular games. Go to their website to look at the games.

The amazing part of these games is that they utilize NFTs. These NFTs have a value and can be sold on the Axie Marketplace. So as you play the games, you can accrue something of value. Many are calling these games, play-to-earn games.

Some people are even earning enough income that playing these games are their full-time job.

These applications drive demand for cryptocurrencies

All these applications that are built on the Ethereum network drive demand for Ethereum. Any transaction that happens in these games needs to be recorded on the blockchain to be secure.

All transactions on the Ethereum blockchain require “gas” in the form of Ethereum to be paid. The more people using these apps means more demand for Ethereum. And that demand is what is driving the price of Ethereum higher.

This is also true for other cryptocurrencies like Solana, Polkadot, and Avalanche.

We are most excited about cryptocurrencies that have use-cases that drive demand. We have only scratched the surface of the different use cases and crypto projects here.

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