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Recent years have seen a plethora of cryptocurrencies being launched, starting with Bitcoin during the Great Financial Crisis in 2008. Today, the total market capitalization of these cryptocurrencies is approaching $2 trillion dollars. Collectively, they are emerging as an important component in the future of finance. It is, therefore, imperative for individuals to get familiarized with them as part of their financial literacy. In this article, I will describe what cryptocurrencies are and the different ways of acquiring them.
What are cryptocurrencies?
Cryptocurrencies are native tokens that exist on blockchains, whose transactions are recorded on the native ledger. Depending on the design of the blockchain, the functional use cases of cryptocurrencies can differ. Bitcoin, the world’s first cryptocurrency, is used as a store of value due to its absolutely limited supply — although increasingly it is also used as a means of payment, thanks to the development of the layer 2 Lightning Network.
Ethereum, as the second-largest cryptocurrency, is used as a utility token to pay for smart contract-based transactions (called “gas fees”) that utilize the computing power of the Ethereum blockchain. Other smart contract platforms and Ethereum competitors, such as Cardano, Solana and Polkadot, all have their own native tokens. In addition to paying for transaction fees, these tokens can also serve as…
