What is a Cryptocurrency?
Cryptocurrency, or crypto as it is known in the community, is the monetary aspect of a blockchain network. Crypto holds various functions and can be used for more than just making transactions. The greater the utility and overall necessity of a cryptocurrency is what drives the price up or down depending on how many users purchase, hold, and sell their coins.
How Does Cryptocurrency Work?
When a blockchain platform is developed, the team behind it has some crucial decisions to make concerning cryptocurrency. This is called tokenomics and concerns:
- Function within the chain;
- Their distribution;
- How many need to be brought into existence.
This last consideration is especially important as rarity and accessibility is extremely important to how the functionality will be affected and the price of each coin over time.
Generally, new coins are brought into the market through the consensus algorithm of the chain. Consensus refers to the production of blocks through the internal mechanics of a chain. This could be through power usage and hardware that calculates complex mathematical puzzles to encrypt data uploaded to the chain (Proof-of-Work), or through staking some crypto that you already own (Proof-of-Stake). Regardless of how blocks are created there needs to be an incentive and punishment system that moderates validator behavior.
Cryptocurrency may also be needed in the building of new chains or in opening smart contracts within the protocol. The more incentives users have to collect and use the crypto, the more the price of the coin will increase. Investors purchase coins and tokens for this speculative aspect of cryptocurrency which acts as another incentive for people to use the coin in question.
Cryptocurrency vs. token
There is a distinction in cryptocurrency vs. tokens which users need to understand when interacting with a chain or application.
First, we need to understand that blockchain protocols are the base layer of a network on which applications can be built. Cryptocurrency is often referred to as a native currency and is used within blockchain protocols. Tokens on the other hand are the currency which are utilized on platforms which are built onto the base layer, sometimes referred to as layer 2 or layer 3 blockchains.
How to Buy Cryptocurrencies
Understanding how to buy crypto is essential to being able to gain access to a protocol and the various applications you may wish to use. Currently there are three methods for purchasing crypto:
- Centralized exchanges (Like Binance and Kraken)
- Decentralized exchanges (Like Uniswap or wallets like MetaMask)
- OTC (Directly from users)
The Lisk cryptocurrency is called LSK and is available on many of the largest centralized exchanges around the world like Binance, Kraken, and UpBit.