All About Cryptocoin Accounts and Smart Contracts

Bitcoin and cryptocurrency can be confusing but it doesn't have to be

A woman in her home office with her laptop being confused
Cryptocurrency and Bitcoin can be super-confusing.  Madhouse / iStock / Getty Images Plus

Cryptocoins, or cryptocurrencies, are a new form of digital currency powered by a type of technology called a blockchain. Bitcoin is one example of a cryptocurrency. Ethereum, Ripple, Litecoin, and Monero are some others that are commonly used.

This new technology has seen the arrival of a host of new words and phrases that many wouldn't have even heard of a decade ago and they can cause some confusing amongst new consumers looking to get into the exciting world of cryptocurrency.

Two of these new crypto phrases cause the most confusion are cryptocoin accounts and smart contracts. Here's what you need to know.

Cryptocoin Accounts Don’t Really Exist

Because cryptocurrency is usually talked about as a new technology, it's understandable for those who are new to it to think that they have to sign up for a cryptocoin account in the same way that people need to sign up for Facebook and Twitter before they can begin using those services.

In reality though, all cryptocoins are simply a form of currency and don't have a direct account system tied to them. You don't need to create a dollar account to send and receive dollars. You don't need a Bitcoin account to use Bitcoin either.

When casual crypto users mention a cryptocoin account they could be referencing (incorrectly) a cryptocurrency wallet or a third-party service which manages Bitcoin and other cryptocoins.

What's a Cryptocurrency Wallet?

A wallet is a piece of software that contains the private keys that grant access to cryptocurrency funds on their respective blockchains. Without a wallet, you cannot access a cryptocurrency.

Most of the crypto smartphone apps you see in the iTunes or Google Play stores are software wallets for holding, receiving, and spending cryptocurrency. You can also download software wallets onto your computer such as the Exodus Wallet.

Actual physical devices that are used to store and use cryptocoins are called hardware wallets and these have software wallets on them but use the physical keys as an extra layer of security.

What Are Popular Cryptocoin Account Services?

Popular services such as Coinbase and CoinJar sort of work as cryptocurrency banks. They allow users to create (service not cryptocoin) accounts on their websites which can be used to buy, trade, and send Bitcoin, Litecoin, Ethereum, and other cryptocurrencies.

It's important to remember that these are third-party services that can be used to help people use cryptocurrency. Cryptocoins are similar to regular money in that there are many ways to get them and some are more trustworthy than others.

What is a Smart Contract?

A smart contract is simply a protocol that's used to automatically verify, process, or negotiate a specific set of conditions during a transaction on a blockchain. They're sort of like contracts that are agreed upon by both parties and are able to be verified by the blockchain itself without the involvement of any third-parties or the authorities.

Because of the nature of blockchain technology, the processing of information via a smart contract should, in theory, be faster and more secure than the traditional method of sending files online or physically relaying data in person. There is less chance of mistakes being made as data is processed instantaneously and the blockchain itself can check immediately for accuracy.

Not all cryptocurrencies support smart contracts however. Bitcoin, which is easily the most-famous cryptocurrency, doesn't use smart contracts at all while many others like Ethereum do. In fact, smart contracts are one of the reason that Ethereum has garnered so much attention among programmers and developers.

Smart contracts are a technology that can be added to cryptocoins by the currency's developers though so while a coin may not have the capability to perform a smart contract today, it could in the future.

Potential use cases for smart contracts include managing auctions and investments, scheduling payments, managing data, and crowdfunding.

Are Smart Contracts Important?

Smart contracts could be important for the numerous ways they could improve a variety of industries but for casual cryptocurrency users who simply want to use their cryptocoins to go shopping or keep as an investment, it's not really something they should worry too much about. It really depends on who you are and how you use your crypto.