As one of the most popular topics on the web today, it is no doubt that many are curious about cryptocurrency. That is even more so for those looking to invest in cryptocurrency. However, as you’ve no doubt read somewhere, investing in cryptocurrency could easily turn into an investment nightmare, particularly if you have no idea what it is. In this article, we aim to explore what cryptocurrency is, beyond its basic definition.
Cryptocurrency is a decentralized digital medium of exchange. Like with normal currency, or what is usually known as fiat currency, you can use it to exchange for goods and services online. Of course, we all understand all that from the definition. What confuses most people is what it means when we say that cryptocurrency is decentralized. In essence, that means that there is no centralized governing body for cryptocurrency. Central banks control the production and flow of fiat currency but it is different for cryptocurrency. Instead, cryptocurrency relies on blockchain technology for its regulation.
How Are Cryptocurrencies Created?
Since it is entirely different from paper money, the creation process of cryptocurrencies is also different. One of the most common methods of crypto creation is mining. Mining is the process where users are rewarded for verifying the transactions of a cryptocurrency. The process is essentially coding. The miner solves the “problems” in a block of code and for the effort, they receive a certain amount of cryptocurrency. Of course, you have to solve the code faster than your competitors to receive the rewards. More importantly, this is also a system of checks and balances for cryptocurrency users.
For paper money, it is gone as soon as it is spent, and it continues its circulation through the process of constant spending. However, with cryptocurrency, what’s to say that you can’t spend the same crypto coin twice or more times? The miners that verify the transactions are the checks and balances to keep the users honest, especially since there isn’t a governing body for cryptocurrency.
Alternatively, there are countless companies that have come up with their own cryptocurrencies. The currency is essentially code so it’s not that difficult to create if you know what you’re doing. However, such cryptocurrencies don’t rely on mining for their creation. In most cases, they are just used as a token within the company for the exchange of goods and services within the company. As such, the company can create or destroy them at will.
How To Get Cryptocurrency
There are currently 6,700 publicly traded cryptocurrencies, including popular names like Bitcoin, Ethereum, and Litecoin, which is quite a significant number. However, the challenge is that most people don’t know what they need to do to get their hands on them. There are two popular ways of getting your hands on cryptocurrency: Mining and trading.
The prerequisite if you want to mine for cryptocurrency is that you have to be proficient in coding. Additionally, you need to have a powerful IT infrastructure. The more powerful your mining platform, the faster you can crack the code and the higher your chances of earning cryptocurrency. Of course, this process is not entirely reliable despite the supposed guarantees.
Trading is the way to go for most people, especially those of us who aren’t proficient in coding or patient enough to persist through the entire mining process. When it comes to trading, you first need a digital wallet, which is essentially an app to hold your cryptocurrency. The wallet is both your account and your identity. As mentioned, cryptocurrency relies on blockchain technology, which is a decentralized digital ledger. The crypto wallet is the only way to access blockchain. The wallet is encrypted and has both public and private keys. Once downloaded, you get access to both keys with the public key serving as your account identification and the private key serving as your access code. After you get the wallet, you can then go to a crypto exchange platform such as Coinbase and trade for cryptocurrency. Some cryptocurrencies are traded for fiat currencies while others only accept crypto to crypto exchange.
What Makes Cryptocurrency So Popular?
One of the reasons why cryptocurrency is so popular is that it guarantees anonymity. With fiat currency, there is always a record of your transaction somewhere. However, all transactions with cryptocurrency are cryptographically encrypted; That’s where the name comes from. That means that as long as no one gains access to your private key, no one should find out about your transactions.
Theoretically, it is impossible to hack the blockchain and cryptocurrency by extension. In practice, however, it is just very very hard to hack. Blockchain, by its nature, relies on a peer-to-peer network, meaning that it relies on different devices to propagate itself and maintain its functions. Each device on the network acts as a node and you can’t access the entire blockchain without the corresponding keys. While there are security vulnerabilities of blockchain that endanger cryptocurrency, it is still one of the most secure methods of transaction available.
Blockchain Technology And Its Future Prospects
Blockchain technology is the core of cryptocurrency, but is so much more than that and many people have come to realize that. Its applications extend into most industries that need secure and decentralized record keeping. Seeing the future that lies ahead of blockchain technology, most people are interested in knowing how far cryptocurrency, as its dependent, can go.
The Downside of Cryptocurrency
It is not all sunshine and rainbows with cryptocurrency. Aside from the security risks, the most obvious downside of cryptocurrency is its unreliability as an investment. Bitcoin, one of the most popular and most successful cryptocurrencies, is the perfect example of how unstable cryptocurrency is as an investment. In December 2017, the price per Bitcoin rose to as high as $20,000 but dropped to as low as $3,000 in December 2018.
Developing an understanding of cryptocurrency is necessary in current times, regardless of your intentions to invest. As a popular market trend, it pays to know how cryptocurrency affects the current markets. Through this article, we hope that you have gained at least a basic understanding of the ins and outs of cryptocurrency.
Here’s to the Wellness of Your Wallet!