Understanding Cryptocurrency
Cryptocurrency—also known as crypto—is a type of digital or virtual currency secured by cryptographic technology. Unlike traditional currencies managed by central banks or governments, cryptocurrencies operate on decentralized networks. These networks use blockchain technology to track and verify transactions and to issue new currency units.
How Cryptocurrency Functions
Cryptocurrency works as a digital alternative to traditional money, enabling direct peer-to-peer transactions without the need for banks. Instead of physical cash, crypto exists solely in digital form and records all transactions in a public ledger known as the blockchain. This ledger is maintained by a decentralized network of users. Digital wallets are used to store cryptocurrencies securely.
The term “cryptocurrency” comes from the use of encryption techniques to ensure the security of transaction data. These cryptographic processes protect user identities and transaction details from unauthorized access.
Bitcoin, launched in 2009 by Satoshi Nakamoto, was the first cryptocurrency and remains the most widely known. Many people are drawn to cryptocurrencies for the potential financial gains through trading, although their prices can be highly volatile.
The Role of Blockchain
At the heart of cryptocurrencies is the blockchain—a public, distributed ledger that records all transactions across the network. New coins are created through “mining,” a process where powerful computers solve complex mathematical puzzles to validate and record new transactions.
Besides mining, cryptocurrencies can be purchased from brokers or exchanges and are stored in digital wallets. Owning cryptocurrency means holding a private key that gives you the authority to transfer a specific digital asset without relying on a middleman.
While Bitcoin has been around for over a decade, cryptocurrency and blockchain applications are still developing. Future use cases may include trading financial assets like stocks and bonds through blockchain platforms.
Popular Cryptocurrencies
Bitcoin (BTC): The original and most commonly traded cryptocurrency, created in 2009.
Ethereum (ETH): Launched in 2015, Ethereum is a blockchain with its own digital currency, Ether. It’s known for enabling smart contracts.
Litecoin (LTC): Similar to Bitcoin but offers faster transaction speeds and additional innovations.
Ripple (XRP): A payment platform designed for fast, low-cost international money transfers. Ripple is often used by financial institutions.
All non-Bitcoin digital currencies are often referred to as altcoins.
How to Buy Cryptocurrency
Step 1: Select a Platform
To get started, choose either:
A traditional broker, which may offer lower fees and other financial services but limited crypto options.
A cryptocurrency exchange, which provides access to a broader range of digital currencies and wallet services but may have higher fees.
When comparing platforms, consider factors such as supported coins, security, fees, ease of use, and educational resources.
Step 2: Fund Your Account
You’ll need to add funds to your account using:
Fiat currency (USD, EUR, etc.) via debit/credit cards or bank transfers.
Note: Credit card use for crypto purchases can be risky due to fees and market volatility. Some credit card issuers block these transactions.
ACH or wire transfers, which may be safer and cheaper.
Be mindful of fees for deposits, withdrawals, and trading, as they vary by platform and payment method.
Step 3: Place Your Order
Use the platform’s interface to buy or sell cryptocurrency. Select the amount and type of coin, choose your order type (e.g., market or limit), and confirm the transaction.
Alternative investment options include:
Crypto on payment apps (like PayPal, Venmo, and Cash App).
Bitcoin trusts and ETFs, for stock market exposure.
Blockchain stocks, offering indirect crypto investment.
Storing Cryptocurrency Safely
Once purchased, your crypto assets need secure storage:
Hot wallets: Connected to the internet, offering easy access but more vulnerable to cyberattacks.
Cold wallets: Offline devices (hardware wallets) offering greater security but often with a cost.
Some exchanges offer built-in wallets, but it’s wise to research the best wallet option based on your security needs.
What Can You Buy with Cryptocurrency?
While Bitcoin was envisioned as everyday digital cash, its use as a payment method is still limited. However, it is accepted by a growing number of merchants:
Tech and e-commerce: Sites like Newegg, Microsoft, AT&T, Shopify, Overstock, and Home Depot.
Luxury items: Online retailers like Bitdials accept Bitcoin for luxury watches and jewelry.
Automobiles: Some dealerships accept crypto payments.
Insurance: Companies such as AXA (in Switzerland) and Premier Shield Insurance (in the U.S.) accept crypto for premium payments.
Even if a merchant doesn’t directly accept crypto, you can often use crypto debit cards like BitPay.
Cryptocurrency Scams and Risks
Unfortunately, the rise of crypto has been accompanied by fraud and cybercrime. Common scams include:
Fake websites and testimonials promising high returns.
Ponzi schemes, where new investors’ money pays returns to earlier ones.
Impersonation scams, using fake celebrity endorsements or false claims to boost a coin’s value.
Romance scams, where fraudsters manipulate people into investing in fake crypto schemes.
Phishing and hacking, where digital wallets are targeted to steal funds.
Is Cryptocurrency Safe?
Cryptocurrency systems use blockchain and two-factor authentication to protect transactions. However, they are not immune to hacking. Major heists, like those affecting Coincheck and BitGrail, resulted in losses of hundreds of millions.
Crypto’s value depends purely on market demand, making it highly volatile. Moreover, cryptocurrencies lack the regulatory protections that cover traditional investments like stocks and mutual funds.
Consult us for further guidance on how to deal with cryptocurrency transactions in Kenya and beyond the East and Central Africa region.
By Sydney Vanpelt, communication Specialist,
Zylloo Consult, All Rights Reserved
Send me an email at sydney.vanpelt@zylloo.com