Crypto noobs: What to tell newcomer friends about digital currency

Interest in crypto has been growing since the 2017 bull market and has increased even further since 2021, which saw the nonfungible token (NFT) boom and Bitcoin (BTC) hitting its highest price so far. 

So, what can a crypto investor tell family and friends who are interested in cryptocurrency? Here are some common and important questions that one can come across regarding crypto and some appropriate responses with opinions from experts in the industry.

What is cryptocurrency?

One of the most common questions a crypto investor might get asked is what cryptocurrency is in the first place. Cryptocurrency is a digital currency that is designed to be used as a medium of exchange. This exchange can come in the form of peer-to-peer (P2P) payments and retail purchases. 

Lucaz Lee, CEO of Affyn — a mobile-based metaverse platform — told Cointelegraph, “A cryptocurrency is a digital or virtual currency designed to work as a medium of exchange. It uses cryptography to secure and verify transactions, making it difficult for anyone to create fake transactions or counterfeit money.”

Lee continued, “Additionally, cryptocurrencies are decentralized and use distributed ledger technology, meaning no central bank or government is controlling them.”

Cryptocurrencies exist on the blockchain, which is a public ledger that records all transactions that take place, making it possible for anyone to see how money moves through the network. While anyone can see how much money a user owns and how it is spent. Users need a wallet to send and receive crypto, and these wallets use alpha-numerical identifiers, which add a layer of anonymity to the users.

What purpose does cryptocurrency serve?

The main purpose behind cryptocurrency is the ability for anyone to send and receive money through a decentralized P2P network. This works as a digital version of cash. For example, when users pay with cash, they pay directly to another person without having to go through an intermediary such as a bank or payment processor.

Cryptocurrency does this on a digital level, allowing anyone to transfer money directly to another person, entity or organization while retaining control of their funds at all times. Lee agreed with this take, stating, “cryptocurrencies can be used as a medium of exchange or payment for specific services without any intermediary or centralized control. It removes the limitations of traditional finance, enabling the globe’s large numbers of unbanked and underbanked users to access financial services.”

Cryptocurrencies are also being used as investment vehicles, with users being able to make high returns due to their limited supply, high volatility and high level of speculation.

Lee added, “With each passing day, cryptocurrencies are becoming more attractive investment options. Certain variations also support opportunities to generate passive returns, helping investors expand and diversify portfolios.”

If crypto isn’t backed by anything, how is it worth anything?

Most cryptocurrencies aren’t backed by any traditional assets apart from stablecoins like USD Coin (USDC) and Tether (USDT), which have a large portion of their tokens backed by reserves of fiat money and bonds. Some people may wonder why cryptocurrency has any value if they aren’t backed by anything. 

First, a lot of the value comes from the utility of a cryptocurrency. The more a cryptocurrency is needed for a particular task, the more demand there will be for that cryptocurrency. Examples include using crypto as a store of value and uses for particular protocols within sub-industries like decentralized finance (DeFi) and NFTs.

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Igor Mikhalev, partner and head of emerging Tech at EY and decentralized autonomous organization chairman of Blueshift — a decentralized exchange — weighs in on this question, telling Cointelegraph, “cryptocurrencies built well are worth increasingly more because they exhibit the…