Cryptocurrency is a type of digital currency that is exchanged via the internet. Cryptocurrencies were first launched in 2008 when Bitcoin entered the market. And since then it has been the most powerful and highly-recognized cryptocurrency. With time other cryptocurrencies also entered this rapidly growing market. Cryptocurrencies such as Bitcoin, Ethereum, Decentraland, XRP, Polkadot and many more available in the market are transforming the way we invest our money. Here’s a beginner’s guide to learn more about how cryptocurrencies work.
What Is Cryptocurrency
Cryptocurrency is a type of digital money that uses blockchain technology for value transactions. Cryptocurrencies are not physical currencies, instead they are used as a digital payment mode. Whenever you transfer cryptocurrency, that transaction is verified by blockchain. Cryptocurrency or crypto uses a secure form of transactions known as cryptography. There is no central authority involved in regulation of crypto, rather it has a decentralized system that manages the transactions, which means that it is controlled by a peer-to-peer open source network of computers, so anyone who wishes to participate is capable of doing so.
Some cryptocurrencies allow transactions only but others have much more exciting features. Best thing about crypto is that it permits the users to transfer currency directly to the receiver while eliminating the need for a middleman such as a bank. You have the power to make digital transfers instantly by paying a minimum transaction fee.
Crypto can also be bought from traders or brokers for investing or storing in crypto digital wallets. To put it in simple words, there is no real money involved while you’re making a transaction, you’re just moving a data record from one person to another without the need of a middleman or third party. Crypto is a quicker and efficient manner of buying goods, trading stocks, making transactions, and saving as a financial asset. Cryptocurrency is a form of currency that is digitally encrypted while being decentralized. Albeit, it is an exhilarating experience to invest in fast growing cryptocurrencies, on the other hand they are extremely volatile which labels them as risky as it goes up and down with market trends. A lot of research and smart work goes into understanding cryptos.
Today, there are more than 5,000 different cryptocurrencies in circulation worldwide. Applications of cryptocurrency include trading for profit and making digital transactions. You should carefully research before you invest in crypto. We have cautiously curated this article for you to understand all technical terms and trends that go into making of the crypto market.
What is Blockchain and Crypto Mining?
You might have heard of this term thousands of times, and if you still haven’t understood its meaning, read carefully. A blockchain is nothing but a chain of various blocks. All the transactions are recorded in the form of codes in these blocks. When one block is full, another comes into the picture. Then these two blocks get linked through a chain of previous transactions and this process keeps going on. Such a link of blocks via a chain of transactions is known as blockchain. Thus, it implies that a blockchain consists of the data of all digital transactions.
Buchi Okoro, CEO of Quidax says “Imagine a book where you write down everything you spend money on each day. Each page is similar to a block, and the entire book, a group of pages, is a blockchain”. Cryptocurrency users have a copy of their own transactions that are updated from time to time. To prevent any information manipulation and fraud transactions, techniques such as proof of work and proof of stake are applied. These techniques help in verifying transactions before they’re added to blockchain and in turn verifiers are rewarded with more crypto.
Cryptocurrency is a decentralized digital currency that is not controlled by any government, country or organization. If I’m saying that crypto is not controlled by any government then how will you be able to trust it? Here’s the answer: ‘Blockchain’. All transactions are examined by this technology. Let us understand in depth about Blockchain technology. Blockchain is a kind of encryption that assists in evidencing a crypto transaction. Encryption basically refers to advanced coding that helps in securing data while being transferred between the sender and the receiver. A blockchain is way similar to a bank passbook copy. Different cryptos have their own blockchains which helps in verifying all the transactions made using a particular currency. These blockchains are widely distributed among all the users of a digital currency. This is revolutionizing technology, making breakthroughs in fintech by utilizing the concepts of artificial intelligence and computer science.
Cryptocurrencies run on the blockchain method, a blockchain that maintains a record of all transactions made by a particular currency holder. Crypto mining is another term that describes the process of creating cryptocurrency units. Mining process is based on the computer’s intelligence to solve a complicated math problem that generates crypto coins. Usually, in return for verifying a transaction, new units of cryptocurrencies are released, the process is known as Mining. It is easier to earn more crypto by mining through proof of stake systems, but mining is a bit tedious job when it comes to proof of work systems such as in Bitcoin. An interesting fact about mining in proof of work cryptocurrencies is that mining consumes such huge amounts of electricity that miners lose about 60% to 80% of what they earn in paying electricity bills.
Satoshi Nakamoto described Bitcoin as “an electronic payment system based on cryptographic proof instead of trust”. Blockchain plays a vital role in building trust of users by incorporating the use of blockchain technology. It records and shows a cryptographic proof of transactions made, which helps in verifying the authenticity of transactions.
Key Features of Cryptocurrency
Crypto might sound confusing but here’s a list of key features of cryptocurrency to make you understand them better-
One of the most reliable features of crypto is its speed. You can make quick worldwide transactions over the internet within a fraction of a second. And it is as simple as paying with cash at a store.
As we have already discussed the blockchain technology above in this article, it’s now easy to understand how blockchain assists in security of your digital payments. Almost all cryptocurrencies utilize blockchain in verifying crypto exchange.
Crypto transactions are digitally encrypted which diminishes the chances of identity theft. While paying via cryptocurrency, no personal information is required, hence eliminating the risk of leaking your financial details to banks, advertisers, and payment agencies. Crypto values your privacy and protects your information from getting public.
All the transactions over any cryptocurrency are published publicly on a global level, which eliminates any chances of fraud in currency transactions.
One of the strongest pursuits of any crypto is the power-packed safety that comes along with it. Bitcoin, a very well known crypto, has never been hacked. The reason behind such enhanced security is being an open source platform. There is nobody in charge of cryptos, what’s happening is in front of us. Efforts of researchers and cryptographers have made it possible to establish such transparent and secure platforms.
How to Invest in Cryptocurrency?
You can buy cryptocurrency on peer-to-peer networks and cryptocurrency exchange platforms such as Kraken, Coinbase, Binance, and Gemini. However, you ought to be very careful while selecting a platform, as they may charge you an exceptionally high fee for small crypto purchases. There are some other platforms such as eToro, Webull etc, to invest in crypto. These platforms offer you the advantage to trade between different currencies such as Bitcoin, Dogecoin, Ethereum, etc. but it limits your reach to move on to another platform with your crypto. Crypto is much more than just an investment option. To get more exposure to crypto platforms, the best way is to invest in stocks of these companies. This might help you understand the crypto market better. Zeiler says, “If you want some crypto exposure with less risk, you can invest in big companies that are adopting blockchain technology, such as IBM, Bank of America and Microsoft”.
Where Can You Use Cryptocurrency?
Cryptocurrency has gained enormous popularity over the last decade but there’s still a long way ahead. Although acceptance of crypto increased largely, it is still not accepted as a mainstream form of currency in various nations. However, a large number of retailers and brands are accepting Cryptocurrency.
- Overstock.com is one of the online retailers that accept Bitcoin as a currency to buy common household goods.
- You can buy crypto as gift cards that later can be redeemed at popular platforms such as Amazon, Dunkin Donuts, Target, Apple, etc. eGifter is one such service provider to convert bitcoins into acceptable gift cards.
- Debit cards that convert crypto to credit scores are also trending these days. These cards may be used to make purchases in normal currency. But everything has its own limitations. A little fee is involved while making such transactions. BitPay cards are very popular in the USA.
- Most widespread use of cryptos all over the world is “Investment”. A few years ago, everybody used to invest in gold, stocks or properties, but with the arrival of cryptocurrency people’s interests have changed. It is a quicker way of making money than other options. It is often referred to as “Digital Gold”.
Cryptocurrencies are a modern alternative to traditional banking, it is a powerful tool for-profit investment and online trading. It is a brand new concept of digital coins exchange over the internet that has the capability for faster, easier, cheaper, and more secure transactions. Cryptos remove the barrier of geographical locations, language, and ethnicity. As long as you have access to a smartphone, you are free to invest in crypto.