If you've heard all the talk about how cryptocurrencies and blockchain are changing the world, you may be wondering how you can actually use these cryptocurrencies. Unfortunately, the cryptocurrency space can be quite daunting for newcomers, what with its novel technology. In this guide, we hope to demystify the usage of cryptocurrencies by getting you started with the three most popular examples: Bitcoin, XRP, and Ethereum.
Bitcoin is the world's biggest cryptocurrency, with a market capitalization of over $66 billion and a daily volume also in the billions. In its original release document, the whitepaper, Bitcoin is described as "A Peer-to-Peer Electronic Cash System." So, what's Bitcoin used for and how do you use it?
The original purpose of Bitcoin was to create a decentralized alternative to contemporary electronic cash systems like PayPal or Visa. As a result, it's designed - in the same way as any other currency - to be spent on goods and services.
To use Bitcoin, the first thing you'll need is a place to store it. There are hundreds of Bitcoin wallets you can download for free (here's a list of some of them), but they all offer similar functionality.
When you set up a wallet, you'll get an address that's much like a bank account number. For other people to send you Bitcoin, as a gift or in exchange for goods or services, all you need to do is send them that address.
If your wallet is looking a little empty, you can buy Bitcoin online from dedicated merchants, or even try to get it for free. In that sense, it's just like a foreign currency.
Once your wallet is loaded up with some funds, you're ready to spend. As with any currency, find a product or service that accepts payment in Bitcoin, and use your wallet's built-in sending features to pay!
According to our coin research platform Coinpaprika, XRP is the second most popular cryptocurrency. It has market cap of over $14 billion and easily sees half a billion in trading volume per day. Unlike Bitcoin, XRP is developed by a central authority called Ripple, which describes it as "The Digital Asset for Payments." The question is: what's the purpose of XRP and how can you use it?
As a cryptocurrency, XRP was originally created (by Ripple) to act as a medium of exchange on their international money settlement platform. The main purpose of XRP, then, is also to send money. However, a big part of Ripple's focus is to settle transactions between banks, which means you might be "using" XRP without really knowing about it.
If you want to use XRP to move money yourself, the steps are very similar to those of Bitcoin. You'll first need to set up an XRP wallet and load it with some coins.
Then, in almost the exact same fashion, you can pay for goods and services using the wallet's built-in transaction functionality!
Ethereum is the third and final cryptocurrency that we'll look at in this guide. It has a similar market cap of over $14 billion, but boasts three times as much trading volume on exchanges. Ethereum is advertised as a "decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference," but what's it really for and how can you use it?
The official description of Ethereum is rather apt. It's a platform that you can use to run applications (the smart contracts), but the decentralized aspect means that no single party has control over those applications, and everyone is able to see into how they work. This means you can use the Ethereum network to build clever, futuristic applications like peer-to-peer currency exchanges, betting websites, and automatic insurance policy providers.
Ethereum has its own cryptocurrency - called Ether (or just Ethereum) - which can be redeemed to deploy smart contracts on the platform. Since Ethereum has a specific purpose beside from just being traded, it's referred to as a utility token; however, you can buy, sell, and use Ethereum tokens just like any other cryptocurrency.
To use Ethereum as a currency, the steps are no different than using Bitcoin or XRP: download a wallet, obtain some coins, and spend them!
If you're interested in the functional side of Ethereum, it gets a lot more complicated. Deploying your own smart contracts on the Ethereum network isn't an easy task, since capable blockchain developers don't come cheap. However, if you wanted to, you could definitely create your own smart contract and publish it to the Ethereum network.
An easier alternative to using Ethereum's powerful network is to find a cryptocurrency project that's built onto the Ethereum network and already offers an everyday use case. There are hundreds of such projects, each of them with a unique cryptocurrency token - called an ERC20 token - that can interact directly with Ethereum. You can find these projects on our coin research platform Coinpaprika by searching for the tag "ERC20"; examples include Binance Coin (which gives you a great discount on fees if used on Binance Exchange) and Basic Attention Token (which is used to reward internet creators).
No matter which cryptocurrency you look at, you'll find a common theme: cryptocurrencies can be used as currencies. For almost all of them, usage follows the same principles - download a wallet, get coins, and send them.
Many cryptocurrencies now have a separate purpose, though. Whether they're utility tokens that can be redeemed in exchange for some functionality or security tokens that bring you some kind of a return on your investment, using cryptocurrencies for these specific use cases can vary greatly. There are no rules, and the only way you can find out about new currencies is to do plenty of research or test them out yourself.