What you don’t know about crypto (yet)

Paid for by Ledger

Taken out of context, cryptocurrency can sound like a plot point in a fantasy roleplay board game. A mysterious figure creates a currency. The currency can be purchased, but it can also be found by determined miners, creating a potential pathway to unbelievable wealth. While the currency itself can never be forged or destroyed, the owner of the currency can lose access to their wealth forever if they lose the key to their account.

But cryptocurrency is real — and more relevant than ever. Still, some of the details are so crazy that a dry “here’s what crypto is” explainer just won’t cover the nuance that makes crypto so incredibly disruptive to not only the financial world, but maybe the entire world as we know it. Enter “School of Block,” a “no dumb questions” video series produced by the digital security company Ledger.

Plenty of pop culture references (plus a few explosions) make “School of Block” the place to get your burning crypto Qs answered. Because, while it can be hard to explain succinctly what, exactly, crypto is, there’s one thing it’s not: boring.

It’s all about the blockchain

Cryptocurrency is a digital currency that can be bought, sold or traded. Popular cryptocurrencies include Bitcoin and Ethereum, but there is infinite potential for emerging cryptocurrencies. When Bitcoin was invented in 2009, the currency mimicked assets, such as gold, in that not only could it be bought, it could be “mined.”

Bitcoin mining is a complicated computational process, and “miners” verify transactions and solve a puzzle. The process is part luck and part effort, and while mining may have been a central conversation in the early days of crypto, now investors may focus on building their crypto portfolio by buying assets with fiat currency, aka dollars.

What makes crypto so revolutionary is the decentralized database technology, called blockchain, that anchors the currency (check out the School of Block – Blockchain explainer). Instead of other database systems, where someone owns the database, the lack of ownership in blockchain technology can create full transparency. Data on a blockchain is impossible to copy, forge or destroy, making it potentially more secure than, say, a bank, which can be vulnerable to hackers or thieves.

And blockchain technology has possibilities beyond finance, although crypto may be its buzziest use so far. Companies can use blockchain to streamline supply chains, make manufacturing more transparent and increase operations by reducing friction — all of which may change the way companies operate as blockchain is adopted on a wide scale.

Cash, card or crypto?

Right now, crypto straddles a line between an asset and currency. Increasingly, businesses are accepting crypto as payment — as well as adding crypto to their balance sheets as part of their equity portfolio. And while crypto can feasibly be used to purchase goods and services, the high volatility of the asset makes many investors hold crypto as an alternative asset while they see how it performs in the market.

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But while crypto may have reached mainstream, the blockchain technology means different practices than the ones an investor may take to secure their traditional portfolio. While it’s nearly impossible to delete or tamper with blockchain data, the decentralization of the technology means that there’s no customer service if you have trouble accessing your investment assets.

While certain exchanges have created more user-friendly platforms to buy and store cryptocurrency, traditionally, this alternative asset could only be accessed with a “key,” a unique number necessary to facilitate any sort of action. There have been horror stories of early crypto adapters who know their account is worth millions, yet have lost their key and have no way of accessing their funds. That’s why it can be crucial to understand how cryptocurrency works before you consider whether the investment is right for you.

Don’t forget your key!

Crypto security can seem paradoxical. On one hand, blockchain technology was developed to be ultra-secure as an immutable, irreversible, decentralized data storage system. Theoretically, this can protect users from certain types of hacking and fraud, since there’s no way to delete or tamper with data. But because data is decentralized, that means no one is “in charge” if something goes awry — and if your currency gets into someone else’s hands, it can be almost impossible to get it back again.

Enter the crypto wallet. A wallet doesn’t hold your money, it holds your private “key” — the password essential to accessing your funds. A crypto key is as precious as cash — if it’s lost or missing, it’s gone forever. That’s why the security technology company Ledger creates a hardware wallet that can allow you to keep your key safe, secure and offline, so it can’t be stolen or hacked. Different platforms, including LedgerLive, a secure companion app to your Ledger wallet, allow you to securely manage your crypto, including buying, trading and selling. But before you invest in crypto on any platform, it can be a good idea to know what information and security features are used, and how you will access your crypto.

You’re learning about crypto. So is the IRS.

Right now, crypto is only a tiny fraction of all investment assets globally. But as interest in crypto grows, it likely will continue to capture the attention of investors. Understanding the “how” of this alternative investment class can be the biggest hurdle for investors: Once investors know how these assets work, they can decide for themselves whether crypto is an asset that makes sense for their portfolio — or as a currency to pay for their daily latte. Oh, and one way crypto is the same as other investors? It’s taxed by the IRS at capital gains rates (because, even as investment assets change, you can count on the government to tax them).

From Ledger:

Ledger is a cutting-edge security technology company serving individuals, institutional investors and enterprises. In addition to the Ledger hardware wallet and companion app, Ledger Live, Ledger demystifies the always-changing, sometimes-confusing world of crypto and blockchain in School of Block, an entertaining and groundbreaking video series that connects the dots between the history of money, current events and what’s emerging in the cryptocurrency space.