Cryptocurrency, often referred to as crypto is actually any form of currency that exists digitally or virtually and uses cryptography to secure its transactions. cryptocurrencies do not have a central issuing or regulating authority, instead they make use of a decentralized system to record transactions and issue new units.
Table of Contents
What is Cryptocurrency?
Everyday we hear about cryptocurrency but do we really know what Cryptocurrency is all about?, Cryptocurrency is a digital payment system that does nit rely on banks to verify transactions. It is simply a peer-to-peer system that can enable anyone anywhere to send and receive payments.
Instead of moving around with physical cash to sponsor real world transactions, cryptocurrency payments exist purely as digital entries to an online database describing specific transactions. Each time you make a cryptocurrency transfer, the transaction is recorded in a public ledger.
The name Cryptocurrency originates from the fact that it uses encryption to authentify transactions. This means that advance coding is involved in storing and transmitting cryptocurrency data between wallets and to public ledgers.
The first known cryptocurrency was Bitcoin, founded in the year 2009 and so far remains the best known today. The main objective of several individuals getting into Crypto is actually to trade for profits.
ALSO READ: A Comprehensive Guide To Forex Trading Sessions
How Does Cryptocurrency Work?
As earlier said in this guide, Cryptocurrencies run on a distributed public ledger known as blockchain, a record of all transactions updated and held by currency holders.
Several units of a cryptocurrency can be created via a process known as Mining and this involves using computer power to solve complicated mathematical problems that generate coins. Users are also able to purchase the currencies from brokers, then store with expectation of the further rise in the currency value before selling it to make some profits.
Owning cryptocurrency also means you do not own anything tangible. What you own is just a key that allows you to move a record or a unit of measure from one individual to another without a trusted third party.
It is true that Bitcoin has been around since the year 2009, but cryptocurrencies and applications of blockchain technology are still emerging in financial terms and more uses are even expected in the future since several other financial institutions are already trying to integrate it into their systems.
Examples Of Cryptocurrencies
Since Bitcoin was established around 2009 and few years after, it has been experiencing several spikes, more than 1000 thousand other cryptocurrencies have been created to. Since we cannot site them all as examples, we site just the most popular few.
Bitcoin:
Established in the year 2009, Bitcoin was the first cryptocurrency and is still the most commonly traded and most profitable too. This currency was developed by Satoshi Nakamoto - popularly believed to be a pseudonym for an individual or group of individuals whose precise identity still remains a mystery to be uncovered.
Since Bitcoin was established long ago, It is already accepted and integrated in several other financial institutions as an accepted payment method especially when it comes to staying anonymous with your payments.
Ethereum:
Ethereum was developed in the year 2015 and it is a blockchain platform with its own cryptocurrency, called Ether (ETH) or Ethereum. Sure we already know that this is the most popular cryptocurrency after Bitcoin.
Litecoin:
This currency is similar to bitcoin in several aspects but has moved more quickly to put forth new innovations, including faster payments and processes to allow more transactions.
Ripple:
Ripple is actually a distributed ledger system that was founded in the year 2012. Ripple can be employed to track various transactions, not just cryptocurrency. The company behind it has worked with different banks and financial institutions.
How to Store Cryptocurrency
Once you have bought your cryptocurrency, you might want to store it safely in order to protect it from any form of hack or theft. Most often, cryptocurrency is stored in crypto wallets, which are physical devices or online software used to store the private keys to your cryptocurrencies securely.
You can find various wallet providers to choose from; where you will encounter the terms "hot wallet" and "cold wallet".
Hot Wallet Storage
"Hot Wallets" refer to crypto storage that makes use of online software to protect the private keys to your assets.
Cold Wallet Storage
Unlike hot wallets, cold wallets - also referred to as hardware wallets, is dependent on offline electronic devices to securely store your private keys.
Basically, cold wallets tend to charge fees while there are no fees with hot wallets.
What Can You Purchase With Cryptocurrency?
Bitcoin was first launched with intentions of making it a medium of daily transactions, making it possible to buy everything from a cup of coffee to a car or even huge ticket items like real estate. This has nit really materialized already but the number of institutions that accept crypto as one of their payment method us growing.
However, it is still possible to buy a wide range of products from e-commerce websites using crypto.
Luxury Goods
There are some luxury retailers that accept crypto as a form of payment. Like for example, online luxury retailer Bitdials offers Rolex, Patek Philippe, and other high-end watches in return for Bitcoin.
Cars
There are several car dealers that are already accepting cryptocurrency as as means of payment.
Is Cryptocurrency Safe?
Cryptocurrencies are often built using blockchain technology. Blockchain here simply describes the way transactions are recorded into "blocks" and time stamped. Though its is a fairly complex, technical process, it results in a digital ledger of cryptocurrency transactions that us hard for hackers to tamper with.
More to that, transactions often require a two-factor authentication process. For instance, you can be asked to enter a username and password to start a transaction. Then after, you will need to enter an authentication code sent through text to your personal cell phone.
Though there are well sophisticated securities in place does not means cryptocurrencies are impossible to hack into. Numerous high-dollar hacks have cost cryptocurrency start-ups heavily.
Since Cryptocurrency is a virtual currency, its value is driven entirely by supply and demand forces, creating wild swings that produces significant losses or gains to investors.
Closing Remark On What is Cryptocurrency and How Does It Work?
Sure by now you at least know what cryptocurrency is and how it actually works right? In case you don't have a clear understanding, you can let us know in the comment section so we can help you with your doubts.