What is Cryptocurrency?
A cryptocurrency is a form of digital money. It only exists in a virtual format in a blockchain network and is secured by cryptography.
Blockchain is a distributed ledger technology that makes it possible to store data on thousands of servers. Since blockchain is based on a peer-to-peer network, it is difficult for one user to gain control of the network therefore, making blockchain and cryptocurrency secure.
Just like conventional currencies, crypto can be used to buy goods and services. This article will explore the key features of cryptocurrencies, how cryptocurrencies work, and why you should use cryptocurrencies.
Let’s dig in.
Key features of cryptocurrency
They only exist in a digital environment
Since cryptocurrencies operate with a blockchain network, they all exist online. To access them, you have to use the internet, and a computer or mobile device. Unlike regular currencies, you cannot hold cryptocurrencies in a physical form.
Even then, crypto coins are still stored in wallets. But unlike the wallets we use to store ordinary currency, crypto wallets are software programs that help you receive, store, and spend cryptocurrencies.
They operate within a decentralized system
Cryptocurrencies are not controlled by a single entity such as a person, bank, government or group. Most crypto coins don’t have a central server. Instead, they exist across a decentralized network of computers located all over the world.
Transactions are permanent
All cryptocurrency transactions are recorded on the networks ledger in real time creating a permanent, irreversible, and unchangeable record.
They are part of a peer-to-peer-network
Crypto networks depend on pee-to-peer networks that guarantee transactions and confirm that everything checks out. It is this decentralized nature of cryptocurrency networks that creates efficient transactions, enhances transparency, and prevents government interference.
They guarantee anonymous transactions
With most cryptocurrencies, you can remain anonymous while transacting. This is mostly due to encryption although other security measures are also used to conceal a user’s identity on the network.
They use encryption
As mentioned above, cryptocurrencies are secured through cryptography. Cryptography is the process of converting plain and clear data into a seemingly incomprehensible code. Only those with the decryption key can see the original data.
Every cryptocurrency transaction is secured through cryptography to ensure that the transactions are secure, anonymous and never controlled by any central authority.
How do cryptocurrencies work?
Cryptocurrencies use blockchain’s decentralized technology to help users store and use money without the help of intermediaries.
Crypto coins are created through the process of mining which involves using a computer’s power to solve complex mathematical problems. Once a miner solves a problem, they are rewarded with a certain number of coins. You can also acquire coins by buying them from brokers.
Once you mine or buy a cryptocurrency, you have to store it in a crypto wallet. You can then proceed to use your coins to pay for goods or services, sell them using a cryptocurrency exchange, or simply store them for future use.
What are the most common cryptocurrencies?
According to coinmarketcap.com, there are more than 6700 cryptocurrencies that are traded publicly. These coins are worth a total of over $370 billion. Still cryptocurrencies will continue to proliferate and we can expect to see more and more ICO in the future.
That being said, there are some cryptocurrencies that are more popular than other. Here are some of the top cryptocurrencies in the market today:
Bitcoin – Bitcoin was launched in 2009 by a person or group of people known as Satoshi Nakamoto. It was the first cryptocurrency and is still the most popular. Bitcoin is also the largest cryptocurrency by market capitalization. As of September 2020, Bitcoin has a market capitalization of $210.5 billion.
Ethereum – this is the second most popular and valuable cryptocurrency. It was developed in 2015 as the token for the Ethereum blockchain. As of September 2020, Ethereum’s market cap is $48.6 billion.
These are the two most popular cryptocurrencies. Other cryptocurrencies and their market cap as September 2020 include:
Tether – $13.6 billion
XRP -$12.2 billion
Chainlink – $5.1 billion
Polkadot – $5 billion
Bitcoin Cash – $4.9 billion
Litecoin – $3.8 billion
Binance Coin – 3.5 billion
Crypto.com Coin – 3.4 billion
Why should you use cryptocurrencies?
Those who invested in Bitcoin in the early stages have already made massive profits form the cryptocurrency. But other than being a profitable investment, cryptocurrencies also have other benefits including:
- They allow you to manage your own transactions without the use of third parties.
- You can track your transactions whenever you want.
- Your transactions are private and anonymous and with a cryptocurrency such as verge, untraceable.
- Fast transactions – unlike other means of payments that are processed over a long period, cryptocurrency truncations are processed instantly. This means you can pay for goods and services instantly or receive your money without delays.
- Affordable transaction costs that are way cheaper than those of other currencies.
- Efficient international money transfers – cryptocurrencies make it possible for you to make instant international money transfers without having to pay for foreign transaction fees.
Cryptocurrencies came into the world through Satochi Nakamoto’s invention of Bitcoin in the year 2009. Since then, crypto coins have become a major investment opportunity as well as a means of paying for goods and services. However, if you are looking into crypto as an investment option, it’s good to be careful. Keep in mind that this is still a highly volatile and emerging industry and do thorough research before investing.