What Is Cryptocurrency?
You might have heard about cryptocurrencies repeatedly looking for a perfect store of value. But what is all the fuss about? How well do you know this currency?
Cryptocurrency is a digital currency, sometimes called virtual currency. The first thing to say about cryptos is that they do not exist in the real world. You can use them in a digital world. But it does not change their value. Let's see what cryptos are; then you know why you should take them more seriously.
What is cryptocurrency?
In 2009 for the first time, the term was used to describe the first decentralized cryptocurrency called bitcoin. Satoshi Nakamoto created Bitcoin to provide a perfect solution for the corrupted banking system.
Unlike fiat currencies, cryptos cannot be manipulated. No one can destroy, double spend, or produce more crypto in this network.
How is that possible? We all remember the economic crisis in 2010 when people discovered that the US treasury issued new dollar bills without having enough gold. That was a hint for everyone who used Dollar as a store of value back then.
No fiat currency is worthy without being backed up by gold. So what would happen if a bank that does not have enough gold to back up fiat currency tries to issue more bills?
Of course, you might find yourself having worthless dollars in your pocket.
Bitcoin and other cryptocurrencies make it impossible to produce different currencies. Crypto supplies are predetermined so that no one can change them. But it is not the only remarkable feature of cryptos. Later we will talk about how they work and why they are amazing.
How does cryptocurrency work?
The first thing to know is that there are so many different cryptos in the market, and each works differently. Here we will talk about some of the basics that will help you understand the unique structure of cryptos.
Unlike fiat currencies, cryptos have no room for a central authority. Transactions Information will be stored in a perfect database. Cryptos use blockchain to store information.
Blockchain; the beating heart of crypto
Blockchain is the most fantastic technology ever. It is a public ledger to store information. The network Is public, so everyone in the network has access to the same version of the crypto's blockchain. With every transaction, the blockchain will be updated for everyone so no one can change a thing without being busted. So as you can see, blockchain is the perfect place to store information, and it has so many different features that can be used in various ways. So far, we have talked about the crypto database and how it works perfectly without third-party intermediaries. But where does crypto come from?
The mining industry
Crypto introduced a new term itself, called mining. Mining is the process of creating and issuing new coins. In fact, miners are responsible for adding coins into circulation. The mining procedure is different for every crypto. For example, bitcoin miners solve complex mathematical problems to earn bitcoins as a reward.
But that is not all that miners do. They verify and validate blocks of transactions and get paid for participation in the network.
Miners spend quite a fortune to provide the necessary hardware with enough computing powers to solve mathematical puzzles.
The mining industry is too tense, and everyone tries to find the next block and earn cryptos. Since mining is expensive, miners must sell crypto to pay for electricity and other expenses.
Types of cryptocurrency
So far, we have mentioned Bitcoin as the first cryptocurrency ever, but we forget to say that it is not the last crypto. Every day, the number of crypto on the markets changes, different projects with new ideas and possibilities, and tokens and coins introduce.
|Bitcoin was the first of its kind and certainly the most expensive crypto in the world. But as you might wonder, blockchain technology is fascinating. With such technology, there might be thousands of use cases. Vitalik Butterin understands that with crypto becoming famous day by day, there is an urgent need for other solutions. People might need to spend their cryptos on a decentralized exchange or lend and borrow cryptos without using third parties.
So he created Ethereum, which use smart contract to perform numerous features. Ethereum uses Ether as gas and provides programmers with fantastic possibilities. Programmers can build decentralized applications, tokens, and coins using Ethereum infrastructure.
Ethereum became popular gradually, but some people would not use a virtual currency as a store of value and yet look for ways to participate in this new criteria. The need for a more secure currency led to the creation of stablecoins. Stablecoins are cryptos that are backed by fiat currencies. For example, Ripple is a stablecoin; for every XRP, there is one Dollar in reserve, meaning the value of Ripple is pegged to the US dollar.
Tether is another stablecoin that has become a perfect alternative for the Dollar in the last couple of years. There are so many different coins on the crypto market. Some are forks of Bitcoin, and others are new projects built from scratch like Cardano, Ethereum, EOS, etc.
Advantages of cryptocurrency
In crypto, trust is earned, and there is no need to use third parties. So the possibility of a single-point failure is omitted.
Transferring funds using cryptocurrencies is much easier. There is no need to use a trusted party. By using public keys and private keys, the traders stay secure.
The transfers are done faster because there is no third party involved in the network.
Looking back to the last couple of years, you see Cryptos are a perfect store of value since the crypto market has skyrocketed in value in the previous decade. The bitcoin market alone was 550 billion in 2022.
Cryptocurrencies are a new kind of gold.
How much gold is there in the world? Or the better question is how much more gold remains to be mined? What will happen when there is no gold left to be mined? Of course, the price of the existing gold shoots up, and people will start to find an alternative. The good news is the perfect alternative is already here. Cryptocurrency is the new kind of gold with a limited supply. If you are looking for an ideal store of value, invest in cryptos, and be one of the first to discover new opportunities and enjoy a fruitful investment.
Remember, the cryptocurrency market still is young. So there are so many new things to learn. Before investing in this market, endure you know everything, every crypto. Cryptocurrency will change the future, thanks to blockchain.