In terms of its purpose, cryptocurrency is not that different from the fiat currency that you have in your pocket. You can use cryptocurrency to purchase goods and services or for trading like your ordinary money.
What makes cryptocurrency different is that it is digital (there’s no physical bill or coin), and it uses cryptography for security. Cryptocurrency transfers also have no intermediary like a bank, which means transactions are quick and no extra fees. People use this digital money for that advantage, while others use it as an investment in the hopes that its value will increase.
If you want to learn more about cryptocurrency, here are the other things that you need to know about this digital money.
How Does It Work?
Cryptocurrencies like Bitcoin use Blockchain technology in order to work. Blockchain is a decentralized digital ledger managed by a cluster of computers to record valuable transactions. This technology is the brainchild of a still unknown inventor or group of inventors under the name Satoshi Nakamoto.
The most appealing aspect of Blockchain is that it’s incredibly secure. For instance, it allows the distribution of digital information but prohibits its duplication. This technology paved the way for a new peer-to-peer digital cash system with accounts, transactions, and balances. This P2P network prevents double-spending and has no central authority.
Every entity or peer within the network keeps a consensus about the records in the digital ledger. If there’s a disagreement among the peers about a single balance, it means there’s wrong in the system. Needless to say, each peer in the network should have all the electronic data to determine the validity of future transactions and to prevent double-spending.
Why Are Cryptocurrencies Popular?
According to CoinMarketCap.com, there are over 2,200 cryptocurrencies in circulation. And that number is expected to grow in the next few years. Now, let’s dig into the reasons why cryptocurrencies are popular.
- People support the concept of a decentralized electronic cash system because it’s recording and processing of digital information are more secure than traditional cash systems.
- Supporters like the idea of a digital currency that removes intermediaries like central banks from managing the supply of money. After all, such entities have the power to depreciate the value of money through inflation.
- Other proponents consider cryptocurrencies as a tool to revolutionize the way we do financial transactions.
- More and more people use cryptocurrencies as an investment because their value is going up.
How to Purchase a Cryptocurrency?
There are cryptocurrencies like Bitcoin that can be purchased using United States dollars. But others require another cryptocurrency as a medium of payment for the purchase.
First, you must create an account on a crypto trading exchange. You should have a digital wallet or an application that can hold your currency to purchase cryptocurrencies. After that, you can look for a cryptocurrency to buy now.
One popular crypto trading exchange is Coinbase. This exchange allows you to create a digital wallet and trade cryptocurrencies like Bitcoin with other people. You may also buy bitcoin instantly with a debit card at xcoins.
What’s the Current Legal Status of Cryptocurrencies?
The legality of cryptocurrencies depends on every country. In China, there’s a ban on the use of cryptocurrencies. Under United States law, there’s a regulation on Bitcoin and similar virtual currencies as both currency and security. Many other states and countries are also pushing to regulate cryptocurrencies to protect crypto holders and investors from fraud.
How to Protect Yourself from Fraud and Theft?
If you want to purchase a cryptocurrency in an Initial Coins Offering (ICO), it’s a must to read the prospectus of the company for the information mentioned below:
- Who is the owner of the company? It’s a credible one if its owner is well-known and has a good reputation.
- Are there other big-time investors who want to take part in the success of this cryptocurrency? You’re in good hands if there are any.
- Is the cryptocurrency already developed or still in the stage of raising money for its development? There’s less risk if it’s already developed.
- Is investing in this endeavor means you own a part of the company or merely the crypto coins or tokens? There’s a difference between the two. If you own a stake, you have the power to take part in its earnings, while purchasing tokens only means that you’re allowed to use the tokens.
Hopefully, you have learned something from this primer on cryptocurrency. There’s so much promise on cryptocurrencies in the future. And many people are now using different types of cryptocurrencies for purchase and investment. Do more research if you also want to use or invest in cryptocurrencies.
Leave a Reply