Introduction to cryptoassets

Perhaps you have heard of Bitcoin and cryptocurrency in general and became intrigued enough to want to invest in it, but would like to know more first? Reading this guide, will allow you to know more about its concept, vocabulary, which the main cryptocurrencies are, as well as the different exchange platforms, wallets but cryptocurrency mining too. So come on, let’s dive into the fascinating world of the next major technological revolution together!

The concept of cryptocurrency

Cryptocurrency is electronic money that allows transactions to be carried out through cryptographic validation. Cryptocurrencies are unique because they can be used without the need for third parties such as banks, financial institutions, nation states or companies. This is made possible because the network nodes that validate transactions on the network are rewarded for their efforts and then these cryptocurrencies can then be swapped on specifically designed exchange platforms for any form of currency. Wherever there is usually a third party organisation that conducts transactions, there is also an opportunity for cryptocurrency and the blockchain to be used instead.

In 2008, Bitcoin paved the way for the cryptocurrency era, with one goal: to optimise international transactions by freeing themselves from the current centralised third parties. Today, there are thousands of cryptocurrencies, each with its own particular strength, that being said we can characterise a few common advantages that make most cryptocurrencies revolutionary when making any form of transaction, whether monetary or not:

Disintermediation: The technology and transparent operation of the blockchain produces the trust necessary for users to carry out transactions (i.e. monetary or property, etc.) without requiring the control/validation of a trusted third party (i.e. bank or notary).

Security: The decentralised architecture and the blockchain code guarantee the inviolability of all information recorded on it. Security is ensured by two mechanisms:

  • Cryptography: the code of each block (in the blockchain) is linked to the code of the one that precedes it, the modification of a block would therefore need the entire chain to be modified
  • Decentralisation: this involves a copy of the entire blockchain on each node (computer) in the network, this avoids the risk of a complete loss of data.

Autonomy: The creation of new cryptocurrency pays for the infrastructure costs. This is because all the computing power and hosting space are provided by the network nodes.

The ‘miners’ who validate transactions on the blockchain, provide the hardware, computing power and storage space, in exchange for a reward which they receive cryptocurrency.

Some important vocabulary to navigate the cryptocurrency seas

The world of cryptocurrency uses many technical terms related to how all cryptocurrencies and blockchains work. Here is some vocabulary that you will no doubt come across:

Altcoin: any cryptocurrency which is not Bitcoin, an ‘alternative coin’.

Blockchain: literally a chain (series) of blocks which operate without the need of a central authority thanks its users (nodes). This decentralised technology enables safe and inexpensive storage as well as the dissemination of information. In the case of a public blockchain, everyone is free to consult it and verify every transaction ever completed. We can define a public blockchain as a public, anonymous and inviolable accounting register.

Encryption: This is a cryptographic process that makes it impossible to understand a message or document for people who do not have the specific key to decrypt it.

ICO (Initial Coin Offering): This is a form of fundraising, where a pre-sale of a cryptocurrency is conducted in order to launch a new network. Once the network is launched, the newly created cryptocurrency will help the network to function and will be able to be traded on the crypto markets.

Mining: This is the use of the computing power from a miner’s computer to verify the consistency of transactions against predefined rules in the software code. It allows new block to be validated and thus added to the blockchain. To learn more click on our guide How To Mine Bitcoin?

Miner: Refers to the individual who connects one or more mining machines to the network (a group of these miners would be creat a mining pool). Miners are paid according to the computing power they provide to the network. In the case of the Bitcoin blockchain, miners are paid in bitcoins.

Wallet: the application that stores the cryptocurrencies that you own online and is accessible only using the user’s private key. There are virtual wallets but also physical ones.

Proof-of-work: Nodes must perform and solve calculations, algorithms, and mathematical puzzles to validate the electronic transactions taking place on the blockchain. The difficulty of these puzzles varies in order to keep the validation time constant.

Smart contracts: These are autonomous and automatically executed by the network without human intervention once necessary and predefined conditions are met. For example, a smart contract could open the door of a rented apartment once the amount due has been paid by the tenant.

The main cryptocurrencies

Here are the three main cryptocurrencies which represent the highest market capitalisations in the cryptocurrency market. Investing in these three cryptocurrencies is always a good way to start building a crypto portfolio. After looking at these three, you can also study other promising cryptocurrencies like EOS, Litecoin, and Binance Coin. If you want to become a cryptocurrency trading pro, then you might want to look at niche cryptocurrencies that have smaller market caps but could potentially have much higher percentage increases.

Bitcoin (BTC)

Bitcoin was the first ever cryptocurrency, it was created and validated following Satoshi Nakamoto’s white paper published in 2008: “Bitcoin, a Peer to Peer Electronic Cash System”. Bitcoin is a decentralised cryptocurrency based on blockchain technology to handle transactions and issue digital coins without needing a central authority. Bitcoin’s price and cryptocurrency is represented by the letters BTC on exchanges.

Ethereum (ETH)

The Ethereum network project was discussed in a white paper published in 2013 by its founder, Vitalik Buterin. The Ethereum network was designed with the aim of offering an open and decentralised platform that would allow all developers to create applications using in particular the concept of smart contracts. The Ethereum network issues a cryptocurrency in order to reward the nodes of the network, it is called ether and can be found under its three letters ETH on exchanges.

Ripple (XRP)

Originally introduced in 2012, it is a real-time payment system which aims to replace the current international payment system SWIFT, that has been in place since the 1970s. Unlike Bitcoin, Ripple does not wish to revolutionise the international monetary system but to offer a platform to facilitate international banking exchanges at a much lower cost and also much quicker.

Its cryptocurrency goes under the same name and can be found under the symbol XRP X denoting a non-national currency and RP denoting Ripple.

Exchange platforms for buying cryptocurrency

Now that you know a little more about the world of cryptocurrencies, you are probably wondering how you can get your hands on it? The easiest way is to go to an exchange that specialises in the exchange and trading of cryptocurrencies.

Some of the most popular are:

Coinbase: Coinbase was created in 2012 and makes buying and selling cryptocurrency very easy and fast. The platform also has a built-in wallet to store your cryptocurrencies. However, it can be an expensive way to acquire cryptocurrency, with fees ranging from 1.49% to 3.99%.

Binance: The Binance platform created in 2017 through an ICO of its coin BNB (binance coin) and is a platform that will give you access to hundreds of cryptocurrencies. You can buy them directly with your bank card and In addition, if you buy the cryptocurrency BNB, it will give you access to some exclusive advantages like reduced fees.

Finally, platforms like Coinmama, or even BitPanda offer easy-to-use cryptocurrency purchasing services for beginners. Therefore, by going through the sites just mentioned, you will be able to enter the cryptocurrency market with confidence.

Once you are on one of these platforms you will have a few steps to complete before finally being in possession of your cryptocurrency:

  1. Register and verify your identity
  2. Make a deposit in pounds or another major currency like euros or dollars
  3. Buy cryptocurrency
  4. Secure them in a wallet

Cryptocurrency wallets

Exchange platforms are the best way to invest in cryptocurrency when you are just starting out. However, they present a security risk for your cryptocurrencies if left on the platform. Even though blockchain technology is secure by nature, platforms are centralised institutions and are for this reason not recommended to store your bitcoins. Using a secure wallet is the safest way to hold cryptocurrency but there are types. Most platforms, like Coinbase, make it easy to transfer your cryptocurrencies to one of these wallets, they range from:

Computer-based digital wallets: examples are Armory, Multibit or Ciphrex wallets.

Digital wallets on mobile devices: i.e. Breadwallet and Mycelium are two brands that you can use.

Hardware wallets: These are the most secure type of wallets, they are like safes for your cryptocurrency. Ledger and Trezor offer several types of easy-to-use physical wallets.

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