Right now, cryptocurrencies are all over the news. If you are just discovering what cryptocurrency is, don’t panic, follow the guide! Cryptocurrency is a type of digital currency with which you can buy goods or services. They can be traded or invested in, but are extremely volatile, so you’ll need to be a little brave.
The difference with more traditional currencies like the euro or the dollar? Trust. “Crypto” comes from the cryptographic techniques that guarantee the security of cryptocurrency transactions. These techniques replace the work of banks and third parties in managing transactions.
This is one of the main attractions of cryptocurrency: it is a decentralized financial system that does not depend on any large bank or institution to operate, much cheaper and faster, fair and transparent. But this system has some shortcomings, making users doubt the veracity of this promise. Let’s take a closer look.
What is Blockchain technology in simple terms?
Many rely on blockchain, a technology that allows a decentralized network to review and approve transactions. The blockchain is similar to a digital ledger: all actors in a network receive a copy of the ledger and can reject any attempt to change it.
The blockchain actually acts as a database, storing large volumes of information that cannot be changed. However, by relying on a peer-to-peer network to verify any new transaction added to the blockchain, the trust approach of cryptocurrencies differs from that of traditional currencies.
The latter are indeed regulated by a bank or a central authority. In contrast, cryptocurrencies such as Bitcoin or Ethereum are not managed by any central institution. Likewise, no approved third party (banks, for example) oversees cryptocurrency transfers. It’s this aspect of cryptocurrency that attracts users, but can also complicate payments.
Paying with cryptocurrency
Yes, you’re not dreaming: you can pay with cryptocurrencies, which are still a form of currency after all. Many websites and online stores accept Bitcoins as a form of payment. With cryptocurrencies, you can buy everything from NFTs to plots of land in a video game.
To make a virtual purchase with a cryptocurrency, you need a cryptocurrency wallet to keep your crypto currencies safe. Each wallet contains public and private keys that you can use to spend and receive currency. The public key is a code known to everyone in a system. The private key, on the other hand, is known only to the user and allows him to validate his transactions.
How many cryptocurrencies are there?
According to statista.com, there are nearly 6,000 different cryptocurrencies in active circulation. However, only 20 of these cryptocurrencies are used by 90% of the market.
Setting up a cryptocurrency is relatively easy, which is why a sharp increase in their use has been seen in recent years (as an example, there were less than 70 crypto currencies in 2013). The most popular cryptocurrencies are Bitcoin, Ethereum and Litecoin.
Unlike any regular financial market, cryptocurrencies are extremely volatile, in fact they are highly unstable. A cryptocurrency’s value can spike in only a few days or hours, and crash into the ground just as easily.
Many of these cryptocurrencies, such as Bitcoin, have no intrinsic value, as their value actually depends on supply and demand. So, if many want to buy a cryptocurrency but availability is limited, then its value will increase. To prevent supply from outstripping demand, many cryptocurrencies, like Bitcoin, have a limited number of tokens.
What is cryptocurrency mining?
Cryptocurrency mining is the process by which new units of currency are released onto the market, in exchange for which users are required to confirm transactions and add them to a blockchain.
This system encourages users to continually update and secure the network in exchange for cryptocurrencies like Bitcoin. Anyone with a computer and an Internet connection can mine, but it is not always profitable. Depending on the currency being mined, the capabilities of your computer and the electricity used, you may or may not be able to mine at a profit.
In the case of Bitcoin, mining is a lottery. Any company or person wishing to mine a cryptocurrency will have to take part in a race to solve a special code as fast as possible, which will confirm the transaction and update the blockchain with many details. The winner will then get Bitcoins.
Today, you can buy and sell cryptocurrency on exchange sites like Binance, Coinbase Exchange or Huobi Global. Many of these platforms charge fees (which can reduce your profits!) for transactions.
You can buy some cryptocurrencies with dollars and others with cryptocurrency only. Bitcoin, for example, gives you both options. To start trading cryptocurrency, create an account on an exchange platform. You can then buy cryptocurrencies with real money.
Some platforms provide a “custodial” wallet, which does not allow you to obtain private keys, to store your purchases and exchanges of currencies. Beware: in most cases, the platform holds the private keys to the wallet. So be sure to make a secure exchange if you plan to store your cryptocurrency in such a wallet.
Never forget DYR (Do Your Research)
Cryptocurrencies are currently making a big splash, but remember, they are still in their infancy. Investing in something new isn’t easy, so prepare yourself properly. If you’re thinking about getting started, do your research and invest carefully.