What is Cryptocurrency? A Guide About Cryptocurrency

Cryptocurrency can be termed as a digital currency. It has many similarities with the traditional currencies like the Dollar, Euro, and Pound Sterling, etc. The only difference between these two types of money is that in the case of cryptocurrencies, there are no physical coins or notes which you have to carry around. Cryptocurrencies are stored on your computer hard drive or mobile phone memory. You need an internet connection for transacting using this type of money. There are many different kinds of cryptocurrencies available today.

Types of Cryptocurrencies


There are three main categories into which all the cryptocurrencies fall under:

Utility-based Cryptocurrencies 

These are used mainly by companies to pay their employees and suppliers. They also use them to transfer funds from one account to another without having to go through banks.

Security-Based Cryptocurrencies

In this category, people buy Bitcoins because they want to keep them safe and secure. These are not meant for day-to-day transactions but rather long-term investments.

Decentralized Cryptocurrencies

This is where everyone gets equal access to the same blockchain network. This means anyone who wants to get involved in trading can do so easily. However, if someone tries to cheat others, then he will face severe consequences.

How Does Cryptocurrency Work

The basic concept behind Bitcoin is straightforward. A user creates his wallet address and sends some bitcoins to it. He keeps sending more bitcoins until he reaches the desired amount. Once he does that, he gives out the private key associated with that particular wallet address. Now when other users send him any transaction request, he needs to enter his public key instead of joining his wallet address every time. When he enters his public key, the system automatically verifies whether the sender's signature matches the receiver's public key. 


If everything goes well, the recipient receives the requested payment. To prevent double-spending, each bitcoin transaction includes a timestamp called "block height.” Every 10 minutes, new blocks are added to the blockchain. Each block contains a list of previous blocks along with timestamps. So whenever a person makes a purchase, he checks how old the last partnership was created. If it was less than 10 minutes ago, then he knows that the seller hasn't already spent those bitcoins before. Otherwise, he would receive nothing.

What Are Some Of The Advantages Of Using Cryptocurrency?

  • No Third-Party Involved - Unlike conventional banking systems, there is no third-party involvement in cryptocurrency transactions. Hence, there is no risk of fraud or theft.

  • Low Transaction Fees - Since there is no middleman involved, the fees charged for making payments are much lower than what we see in regular bank transfers. For example, transferring $100 takes about two days, whereas it takes just 1 hour to make the same money via cryptocurrency.

  • Instant Transactions - With cryptocurrency, you don't even need to wait for confirmation from the central authority. Your transaction happens instantly once both parties agree upon it.

  • Privacy And Anonymity - Because cryptocurrencies operate on decentralized networks, your personal information stays completely anonymous. You cannot be tracked as all data is stored online. Also, since there's no centralized database, hackers have difficulty accessing sensitive information like credit card numbers.

  • Easy To Use - There are many different ways to store and spend digital currency, such as mobile wallets, desktop wallets, hardware wallets, etc. It also has its programming language, which allows people without technical knowledge to use them.

  • Security - As mentioned earlier, because there is no single point of failure, security is one of the significant advantages of using this technology. All transactions take place over encrypted channels meaning they're impossible to hack into.

  • Global Accessibility - Due to the internet being accessible worldwide, almost anybody can buy and sell goods and services at low costs.

  • Lower Costs - Compared to traditional methods of paying bills, buying things online through cryptocurrency saves us a lot of money. This is because most merchants accept these types of currencies rather than fiat ones.

  • Flexible Payments - One of the most significant benefits of using cryptocurrency is flexibility. We can pay anyone anywhere around the world by simply typing their email address.

  • Decentralized Networking - Another advantage of using cryptocurrency is decentralization. Since there isn't a single entity controlling the network, it means that nobody owns it. Therefore, if someone tries to manipulate the market, others will notice right away and stop them.

Cons

  • Volatility - Although volatility is not an issue anymore thanks to blockchain technology, it still exists. However, unlike fiat currencies, where prices fluctuate wildly, crypto-currencies tend to remain stable.

  • Lack Of Regulation - Currently, there is no regulation governing cryptocurrencies. They aren't backed up by anything so that they could disappear overnight.

  • High Initial Investment Cost - Buying coins requires an initial investment cost. Most exchanges require minimum deposits ranging between 5% and 20%.

Frequently Asked Questions

How do I invest?

Investing in Cryptocurrency is very simple. After choosing a wallet, send some Ethers from your account to the desired destination. Once done, download Metamask or Mist browser plugin. Open the website coinbase.com and signup with your ethereum wallet address. Now choose how much funds you want to deposit and confirm the payment. The rest is easy!

What’s Ethereum? How does it work?

Etherium is a decentralized platform based on smart contracts. These programs run exactly as programmed without any possibility of downtime, censorship, fraud, or third-party interference. Unlike Bitcoin, etherum offers more advanced features but works only within certain boundaries. For example, bitcoin payments are irreversible, while etherum transfers are reversible. Also, bitcoins have a fixed supply, whereas etherums have a limited supply. In addition, etherum uses a "proof of stake" consensus algorithm instead of proof of work used by bitcoin. Proof of stake algorithms allocates new tokens according to the number of existing tokens held by each user.

Is it safe to invest in cryptocurrency?

Yes, investing in cryptocurrency is utterly secure since all operations happen offline. No personal information is required for registration. All transactions take place automatically via intelligent contract, which makes sure that every detail is recorded accurately.

Can I make a profit off my investments?

Yes, you can earn profits from your investments. You just need to be aware of the risks involved before making any transaction. There are many ways to generate income like mining, trading, etc. Mining involves solving complex mathematical problems to validate transactions and receive rewards. Trading allows users to speculate on price movements. It's important to note that these activities may increase risk.

Where Can I Buy/Sell Cryptocurrencies?

You can easily purchase cryptos at online exchanges such as Coinbase, Kraken, Bitfinex, Bittrex, Poloniex, Gemini, among other popular platforms. Some also allow margin trading. Margin trading refers to borrowing money from brokers to trade more significant amounts of currency. This way, traders don't have to put down their entire balance upfront. Brokers charge interest rates when lending out this amount. However, most people use margin trading because it provides leverage. Leverage means buying an asset using borrowed money. If the value goes up, then the trader will gain more than what he invested. On the flip side, if the market drops, the loss would be less than his original capital.

Which wallets should I Use?

There are different types of wallets available depending upon security requirements. Hardware wallets store private keys offline, thereby ensuring safety. Paper wallets involve printing paper copies of public key addresses and storing them safely. Online wallets are convenient and provide ease of access. They usually offer multi-signature technology where multiple parties must approve transactions. Offline wallets require downloading software onto computers. Most hardware wallets support both desktop and mobile devices. 

Desktop wallets include Electrum, Mycelium, GreenBits, Trezor, and KeepKey. Mobile wallet apps include Jaxx, Coinomi, Trust Wallet, imToken, Exodus, and Copay.

What Is A Blockchain, And How Does It Work?

A blockchain is a distributed ledger used to record data or events digitally. Each entry is called a block, and blocks are linked together, forming a chain. Blocks contain encrypted code that links back to previous blocks. When new entries are added to the chain, each subsequent block references the one preceding it. Because the system records everything chronologically, it creates transparency and prevents tampering. In addition, the decentralized nature of the network ensures trustless operation.

Bottom Line

Cryptocurrencies are here to stay. The future looks bright with blockchain technology being adopted across industries. As long as there are no major setbacks, we expect cryptocurrencies to continue growing exponentially over time. We recommend investors start small and learn about crypto firsthand through our educational resources. Once they feel comfortable, they can move forward into purchasing digital assets.