Cryptocurrency, also known as crypto, is any form of currency that exists digitally or virtually and uses cryptography to secure transactions.
In recent years, crypto has become a hot topic of conversation.
People are finding out more about it and are looking for the best trading platform for this. They want to invest their money optimally and get increased profits. People’s demand for cryptocurrencies is rising like never before.
There is no doubt crypto wave is picking up momentum at present. But it is still nowhere close to being a universal fiat currency. Although there are several reasons, one of the primary reasons for this is that crypto lacks mass acceptance as a mode of payment.
Looking at its popularity, some of the biggest brands and companies have started accepting crypto modes of payment.
However, millions of stores accept Rupay, Visa, and MasterCard but step back to receive cryptocurrencies for any transaction.
In this blog, we will have a complete overview of crypto. We will cover the following:-
- What is cryptocurrency?
- What is the technology behind this?
- Ways of transactions.
- How does it Work?
- Types of Cryptocurrencies:
- Pros & Cons.
So whether you are a beginner or an expert, read on to perceive more about cryptocurrency.
What is Cryptocurrency?
Crypto is a digital or virtual currency that does not rely on banks to verify transactions. It is a peer-to-peer system that enables anyone to send and receive payments across the globe.
The modes of payment in cryptocurrency are far different now. Instead of carrying and exchanging physical money in the real world, crypto payments exist purely as digital entries to an online database describing specific transactions. And in the case of fund transfers, the transactions are recorded in digital wallets instead of the public ledger.
Furthermore, it uses encryption to verify transactions, which means advanced-level coding is involved in storing and transmitting crypto data between wallets and public ledgers- which ensures safety and security.
Bitcoin, the first and most well-known cryptocurrency, was created in 2009.
What is the technology behind this?
Cryptocurrencies use blockchain technology to record and secure every transaction. One of the best-known cryptocurrencies is Bitcoin, which initiated the invention of blockchain.
Let’s understand this with an example.
Suppose a consumer purchases a Bitcoin. The data of transactions is sent across Bitcoin’s decentralized network of nodes. Nodes validate the transaction. After approval, the transaction is grouped with other transactions to form a block, that is added to an ever-growing chain of transactions. Now the completed block is encrypted, and the transaction record is permanent, which can’t be removed or altered on the blockchain.
Bitcoin’s blockchain is public, which means anyone who owns bitcoin can view the transaction report. At the same time, it can be tough to trace the identity in the back of an account, the record shows which bills are transacting at the blockchain.
The public blockchain also allows any user with the computing capacity to approve and record transactions onto the blockchain. However, not all blockchains are public. A blockchain can be designed as a non-public ledger, allowing a private entity to control modifications and additions.
Despite the smaller pool of participants on a private blockchain, it’s still decentralized among all participants. By using identical encryption strategies, private blockchains ensure the safety of any information stored in the database. The idea of the decentralized permanent document of records has drawn interest throughout several industries.
Many of the safety concerns, file-maintenance tactics, and data ownership issues we face today can be solved with it.
Ways of transactions.
There was a time when sending a cryptocurrency required a command line on your computer and programming a transaction.
Now, the complex process of sending and receiving crypto has become facile. It has become simple: using a payment app for transactions from your bank account.
The way you initiate payment depends on your application, but let’s check how it works.
How to acquire?
There is no need to have an account with an organisation or exchange to acquire cryptocurrency. However, it is the easiest and safest way to gain some cryptocurrency unless you have experience setting up a wallet.
A regulated cryptocurrency exchange will allow you to exchange fiat money for crypto. Along, it will give you some additional features like storing your private keys and technical support.
Coinbase, Crypto.com, Kraken, Binance, and Gemini are some popular crypto exchanges that will let you get started after creating an account and adding funds for crypto purchases.
To make payments using crypto, you need to have a wallet application. You can install it on your system or mobile phones to access your crypto.
Several crypto exchanges provide a wallet for their users that enables them to transfer funds to other exchange users. Some wallets can use your device’s camera to scan QR codes to create unique addresses for crypto transactions. Some have near-field communication capabilities that allow you to make touchless payments.
There is no crypto store on your wallet; it only holds the private keys that allow you to access it. Wallets contain public keys used for transactions; they function as email addresses.
There are a lot of wallets available, each having different features. Some are compatible with almost every crypto, while some only work with a few.
Some popular crypto wallets are Coinbase, Metamask, ZenGo, Trezor, and many others.
Where Can You Pay with Cryptocurrency?
The list of places where you can use cryptocurrency to pay for goods and services is growing. Most businesses that accept crypto as payment use cryptocurrency payment gateways. In general, payment service providers will guarantee that cryptocurrency to fiat conversion will happen at the time of the transaction to avoid price slippage.
The business that accepts crypto outright accepts it through an app, or accept it through a service provider include:
Microsoft, Paypal, Overstock, Starbucks and others.
How does it Work?
Neither the government nor central regulatory authorities control cryptocurrencies. Cryptocurrencies are a concept that works outside the banking system using different types of coins, the most famous of which is Bitcoin.
A process called “mining” is used to generate cryptocurrency (which is entirely digital). A complex process is involved here. It is required that miners solve certain mathematical puzzles on specially equipped computer systems in exchange for bitcoins.
#2- Buying, selling, and storing:
Currently, users can purchase cryptocurrencies from central exchanges, brokers, and individual currency owners, or sell them. Digital wallets can be used to store cryptocurrencies once they have been purchased. There are two types of digital wallets: hot and cold.
Hot wallets are connected to the internet, making them easy to use, but vulnerable to theft. On other hand, cold is safer but difficult to transact.
#3- Investments or transactions:
It is easy to transfer cryptocurrency using only a smartphone from one digital wallet to another. Once you purchase them, you have options to:
- a) Invest in them
- b) Cash them out
- c) Make purchases with them
To make purchases with Bitcoin, the easiest method is to use a crypto debit card. As with ATMs, these debit cards can also be used to withdraw cash. The conversion of cryptocurrency to cash can also be done through banking accounts or peer-to-peer transactions.
Types of Cryptocurrencies:
There are more than thousands of cryptocurrencies available today. Some of the largest cryptocurrencies by market cap include:
It is quite popular. There was a time when people use to understand crypto in name of bitcoin. Bitcoin is the world’s first widely accepted form of crypto.
After Bitcoin, this would be the crypto platform you are most likely to recognize in the crypto space. A smart contract aspect of Ethereum makes it a popular currency because it allows you to use ether (the currency) for several purposes.
It is also called a stablecoin. Stablecoins are backed by specific assets, in Tether’s case, it’s the U.S. Dollar. Traders often use Tether as a medium when moving from one cryptocurrency to another.
4- USD Coin
Similar to Tether, USD Coin is a stablecoin tied to the dollar, which means its value should not fluctuate.
Pros & Cons:
Advantages of Crypto:
- Cryptocurrencies are based on blockchain technology, which guarantees anonymity for users. Additionally, it ensures high levels of security through cryptography.
- It is a tamper-proof system with shared ownership so that all authorized members have access to all data.
- During inflationary times, cryptocurrency is a great investment. Gold is often compared to cryptocurrency by investors.
- Investments in cryptocurrency can generate profits. Since the beginning of the decade, cryptocurrency markets have grown tremendously, reaching almost $2 trillion in value.
- A major use case for cryptocurrency is the remittance economy. Money transfers across borders are currently facilitated by cryptocurrencies, such as Bitcoin.
Disadvantages of Crypto:
- The long-term sustainability of cryptocurrencies remains to be seen since they are a relatively new concept.
- Due to their highly volatile and speculative nature, they are likely to spiral downward sharply. There are many reasons why investing in cryptocurrency can be risky.
- There are several countries, where cryptocurrencies are illegal and banned by their government.
- Cryptocurrencies are designed so that anyone with an Internet connection can mine them.
- The blockchains of cryptocurrency are highly secure, but other crypto repositories, such as exchanges and wallets, are vulnerable to hacking.
- The price of cryptocurrencies traded on public markets is volatile.
Finally, it is not advisable to invest in cryptocurrencies without doing enough research. You need to do proper research (or better yet, take the help of a reliable crypto investment advisor) before starting on any cryptocurrency investment journey. Don’t just get carried away by the hype surrounding the concept of cryptocurrencies. While most people are currently investing in bitcoin, the value of this cryptocurrency can be quite volatile, so it’s best to take some time to learn more about these digital coins and why they hold so much appeal among investors.
However, cryptocurrencies are here to stay, and the crypto market will likely continue to boom for years to come. Moreover, the innovations that blockchains bring are very exciting, ranging anywhere from security to identity management—and as such, investing in cryptocurrencies is a promising opportunity.