Bitcoin, cryptocurrencies and non-fungible tokens (NFTs) have made a splash in recent popular discourse, but what exactly are they?
Whether it’s Conservative leadership candidate Pierre Poilievre announcing that he wants to make Canada the “Blockchain capital of the world” or the Liberal government cracking down on cryptocurrency donations to the Freedom Convoy, many Canadians have been left bewildered and confused by the new lingo.
It’s more important than ever to be up to date with new financial technologies and innovations as the world opens up towards digital forms of currency.
True North’s crypto explainer series will help you navigate the cryptocurrency discourse by defining frequently used terms in the clearest way possible.
What is a cryptocurrency?
At its foundation, a cryptocurrency is any digital or virtual currency that uses encryption to ensure that a transaction is secure – making it impossible to double-spend or counterfeit. Encryption is state-of-the-art coding that uses mathematical ciphers to secure and encode data so that it can’t be accessed by malicious actors.
This means that a third-party financial institution like a bank is not required for the conducting of financial transactions because the verification process is built into the programmatic code of the currency itself.
At their core, cryptocurrencies rely on a “peer-to-peer” system which allows anybody, anywhere in the world to send and receive assets. This makes them “decentralized,” or totally outside of the control of governments or financial institutions. Some have raised legitimate concerns that this makes it easier for criminals to conduct black market business outside of the law.
In comparison, normal transactions such as debit or credit card purchases are relayed through a bank which verifies that the transaction is legitimate, making it a centralized financial process.
This is why many libertarian and freedom-oriented politicians, thinkers and investors have praised the virtues of cryptocurrencies – because they give people control over their own money. Some economists have even floated cryptocurrencies such as Bitcoin as an alternative to gold and a way to hedge against inflation experienced by fiat currency due to the overprinting of money.
All cryptocurrencies exist on a digital ledger called a “blockchain.” Essentially, it is an immutable unalterable record of every single transaction or asset in a business network.
What can I do with crypto?
You can do a lot of things with cryptocurrencies. As with traditional currency you can purchase cryptocurrencies from exchanges – however, beware that the value of any given cryptocurrency is subject to quick and drastic change. Investors have branded cryptocurrencies as a “high risk” investment for this very reason.
Within the cryptocurrency community, this price fluctuation has led to many memes and associated lingo in online communities such as “hodl” (an alternative spelling of “hold”) – a term meant to indicate when a long-term investor refuses to sell a currency despite its volatility.
Upon purchasing a cryptocurrency from an exchange or from another venue, the currency is stored in a digital wallet. Once it is there, you can spend it, transfer it, invest it, put it into savings or sell it. The possibilities are virtually limitless, and different cryptocurrency brokerages and exchanges offer varying financial services. In some cases, some services offer cryptocurrencies for free in the form of an “airdrop.”
Cryptocurrencies don’t only have to be used online; they can also be spent in the real world. Many businesses in Canada now allow patrons to purchase goods or services using cryptocurrencies such as Bitcoin. Some companies have even opted to pay some of their employees using cryptocurrencies.
Today there are thousands of different cryptocurrencies, each with their own unique characteristics and features. Due to the decentralized nature of cryptocurrencies, anybody with some technical knowledge and know-how can create their own cryptocurrency. If you make your own, however, don’t expect it to show up on an exchange right away unless it achieves significant interest or use by many people.
