Everything You Need To Know About Cryptocurrency

Cryptocurrency is digital money built on blockchain technology. While this may be the simplest definition, a lot more goes into understanding what it is, how it works and the implications for the association space and beyond. 

Bitcoin was the first cryptocurrency, launched in 2009 with the promise of using cryptographic proof to verify transactions on a blockchain. Its success proved the model and many cryptocurrencies soon followed in its footsteps. 

A little over a decade later, cryptocurrencies have risen to become a digital alternative to government-issued money, with no central authority managing the value of it, and could be an integral part of our future both in the real and digital world. 

Why Crypto Matters

Since cryptocurrency has no country of origin, it is universally valued. It can also be instantly transferred between peers anywhere, and more importantly, requires no oversight. All of this makes cryptocurrency global, digital and decentralized.

Through this system, it is now possible to transfer value online without the need for a middleman like a bank or payment processor, allowing for almost instant transfers globally, with very low fees.

Key Benefits

• Privacy: Cryptocurrency use doesn't require personal information to be given to the merchant. So third parties like banks, payment services, advertisers and credit-rating agencies never see your data.
• Portability: Since cryptocurrency isn't tied to any financial institution or government, they are available anywhere in the world.
• Transparency: Every cryptocurrency transaction is publicly visible so there is no room for manipulation of transactions, changing the money supply or changing the rules.
• Irreversibility: Cryptocurrency payments can’t be reversed, which reduces the likelihood of merchants being defrauded. This also eliminates one of the major arguments credit card companies make for high processing fees.
• Security: Blockchains are permissionless and open-source. Thus all parties can examine all aspects of the network and its security. In fact, Bitcoin's blockchain has never been hacked.

How Does Cryptocurrency Work?

Cryptocurrencies can operate without government control because they run on free, open-source software through peer-to-peer networks of computers, which ensures full transparency in an ecosystem where anyone can participate. 

All crypto transactions are protected by the security of blockchain technology, and each cryptocurrency has its own blockchain, keeping it secure and traceable for anyone using it. 

What does crypto mining mean?

One way to attain cryptocurrency is to “mine” it. This term is used to describe the competitive process that verifies and adds new transactions to the blockchain. "Proof of work” and “proof of stake” are the two major consensus mechanisms cryptocurrencies use to verify these transactions.

• The Proof-of-Work (PoW) method uses powerful computer hardware to handle the cryptographic calculations that verify each transaction. It's essentially a footrace and the miner that wins this competition is rewarded with some amount of the currency.
• The Proof-of-Stake method employs a network of “validators” who contribute – or “stake” – their own crypto in exchange for a chance to validate a new transaction. They then update the blockchain and earn their reward. 

The Crypto Market Today

With over 16,000 types of cryptocurrencies, there is certainly a wide range of variations on the concept. Yet there are really only three major types of cryptocurrency in use: Bitcoin, Ether...and everything else.

The market-share  breaks down as follows:

• Bitcoin: ~ 40% of the market
• Ethereum: ~ 20% of the market
• Altcoins (alternative to the major two): ~ 40% of the market

Using Crypto: Exchanges

As crypto grew in usage, crypto-based securities quickly followed. These are entirely different from traditional securities and so they are traded on crypto exchanges.

There are three different forms of a crypto-exchange:

1. Centralized Exchange: These have a 3rd-party middleman who verifies the transactions.
2. Decentralized Exchange (DEX): These are software platforms where investors trade directly with each other without a middleman.
3. Hybrid Exchange: These combine centralized liquidity with the anonymity of DEX.

What Associations Need to Know About Cryptocurrency 

Cryptocurrency is a revolutionary advancement because it is the first real alternative to the traditional banking system. As the only money that is native to the Internet, it holds the potential of becoming the easiest, cheapest and safest way to exchange value that the world has ever seen.

So how does that affect the association industry?

Fundraising & Donations

As the value of cryptocurrency continues to rise, it has become an asset used for donations as well. In 2021, The Giving Block raised over $2.4 million for non-profits on their Crypto Giving Tuesday campaign – and that trend will likely continue.  

In an article for the New York Times, Paul Sullivan pointed out that not only do donors benefit from tax deductions, but one of the perks of using cryptocurrency in the non-profit sector is “No taxes are owed on the capital gains of assets donated to charity, so the nonprofit effectively receives more money.” 

Creator Economy 

While Bitcoin and Ethereum are some of the most popular cryptocurrencies out there, associations can also create their own form of currency specific to their organization. They’re called creator coins, and they have plenty of applications in the membership economy. 

Not only can they help engage your audience, but also it can be a way to fund new content for your members. Depending on how they’re structured, your organization can use these creator coins to allow members to buy into exclusive content like personalized training and unique experiences at your in-person events. 

Zooming Out

One of the greatest impacts of cryptocurrency is its ability to provide equal opportunity. Its very existence opens up the entire world of finance to anyone with a smartphone. This creates unique opportunities for expanding economic freedom for people across the globe, which is especially relevant in parts of the world where financial opportunity is hampered by social or political constraints.