What is Cryptocurrency?
Cryptocurrency, or “crypto,” is a digital currency that can be freely transferred without the need of bank or a third party payment processor to complete the transaction. Cryptocurrency is transferred through peer-to-peer and other computer networks and memorialized in a digital ledger known as a blockchain, which keeps track of every transaction. Crypto gets its name from cryptography, which provides security for transactions.
What is Cryptocurrency used for?
From purchasing a pizza to making sophisticated investments, cryptocurrency can be used in the same way you use cash or other assets in your possession. Today, you will find more and more businesses that accept crypto currency in exchange for goods or services. You may have even seen an “ATM” in your neighborhood that allows customers to buy or sell crypto currency but instead of dispensing cash, the transfer of crypto is done entirely online. Crypto can even be used as collateral to take out a loan (more about that below).
What is a Crypto Loan?
Through crypto-lending platforms, you can put up your cryptoassets as collateral to borrow cash and other assets. You are generally allowed to borrow as much as you want, so long as you maintain a particular loan-to-value (LTV) ratio. But if you fail to maintain the agreed-upon LTV ratio, your crypto lender can liquidate your collateral to bring the ratio back in line — sometimes resulting in total liquidation!
On the other side, you can lend your cryptoassets to borrowers. Crypto-lending platforms allow you to deposit your assets into an interest-bearing account that they then invest or lend to derive profits for their company and interest for you.
In these ways crypto lenders function like a bank or investment fund; but unlike banks, crypto lending operates in a regulatory grey zone. Learn more about how crypto loans operate.