A cryptocurrency is a virtual or digital currency that can be used to buy goods and services; which implies there’s no physical coin or bill used and all the transactions take place online. It used an online ledger with strong cryptography to ensure that online transactions are completely secure.
What is Cryptocurrency?
A cryptocurrency is a type of digital or virtual money. It serves just as ordinary money, such as dollars, pounds, euros, yen, etc. But it has no physical counterparts — banknotes or coins that can be carried around, that is, the cryptocurrency exists only in electronic form.
It is a purely virtual line of currency that runs on the system of cryptography. It functions as a decentralised medium of exchange where cryptography is used to verify and facilitate each transaction. Cryptography also underlines the creation of units of different cryptocurrencies.
This mode of exchange primarily runs on the blockchain technology – that which lends cryptocurrencies the decentralized status.
How does Cryptocurrency Work?
For starters, cryptocurrencies work on a network of blockchains. Blockchain is the technology on which all cryptocurrencies function. It is a network of thousands of computers connected to each other on a peer-to-peer basis. Thus, all transactions and communications are performed without any gateway or middleman.
Cryptocurrency markets are decentralized, which means they are not issued or backed by a central authority such as a government. Which means that cryptocurrency is digital money which allows users to send online payments quickly anywhere around the world without having to go through a bank and without oversight by any government. Instead, these transactions run across a network of computers.
Unlike traditional currencies, cryptocurrencies exist only as a shared digital record of ownership, stored on a blockchain. When a user wants to send cryptocurrency units to another user, they send it to that user’s ‘digital wallet’. The transaction isn’t considered final until it has been verified and added to the blockchain through a process called mining. This is also how new cryptocurrency tokens are usually created.
Why was Cryptocurrency created? The Intention
The anonymous creator of Bitcoin intended to create a peer-to-peer electronic cash system, meaning that you could instantly send money to someone else (think of PayPal, but without the company doing the transacting for you). The main idea was to eliminate banks and brokers from the equation which could reduce fees and allow senders and receivers to keep the exchange private.
Ideally to start trading cryptocurrency requires nothing more than an Internet connection, making it different from opening an account at a traditional bank (think about how much information you need to provide to get a credit card).
Is cryptocurrency secure?
The basic aim of a cryptocurrency being to provide security and safety, this system uses end to end encryption to verify the transactions. This system uses high end cryptography technologies, its impossible to counterfeit any transactions. Hence the name, “Crypto-currency”.
However, a cryptocurrency is highly volatile in nature and hence are not considered as a completely safe investment option. Their value could drop significantly at any moment and investors could lose a lot of money.
How to make money with cryptocurrency?
Cryptocurrencies’ prices are very volatile, so while there’s a lot of room to make money, there’s also a lot of room to lose money. Financial advisors recommend that if you want to invest in riskier asset classes like cryptocurrencies to allocate more than 5% of your overall portfolio, and to treat it as a long-term investment instead of trying to time the market.
Cryptocurrencies are still relatively new, and the market for these digital currencies is very volatile. Since cryptocurrencies don’t need banks or any other third party to regulate them; they tend to be uninsured and are hard to convert into a form of tangible currency (such as US dollars or euros.) In addition, since cryptocurrencies are technology-based intangible assets, they can be hacked like any other intangible technology asset.
Cryptocurrency has come a long way over the last decade, advancing at a lightspeed pace. The future of cryptocurrency and its associated technology appears bright, judging by the growth and adoption that has been seen since 2008 when Nakamoto published the framework for a little asset called Bitcoin.
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