Cryptocurrency Explained: Here’s Everything You Need to Know

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Technology is continuously evolving. New technologies are emerging, giving people a new taste of modern mechanisms and automation to use in our everyday lives. Today, we have Alex, Venmo, robot vacuums, digital wallets, etc.

In the past few years, cryptocurrencies were introduced to us as well. When it hit mainstream during the pandemic, no one saw it coming; however, it was expected because of its huge potential.

Which leads us to the question, what is cryptocurrency? How does it work?

Cryptocurrency, Explained

Cryptocurrency, in its simplest definition, is digital money. What makes it controversial, however, is how it is built, on the blockchain.

Cryptocurrencies are digital assets created using cryptographic techniques, which allow people to buy, sell, trade, and store them securely.

Comparing it to traditional currencies, moreover, cryptocurrencies are not controlled by the government. It can circulate without any monetary authority like central banks. Also, you can’t hold it like paper bills and silver coins; it is managed by decentralized networks (blockchain) outside any governance by any intermediary. In other words, cryptucrenceis are minted electronically on a blockchain using unique cryptography—protecting and transforming it into a secure format.

Cryptocurrency: How It Works

Bitcoin and all other altcoins or cryptocurrencies are supported and built on blockchain—as mentioned above. Blockchain, in its essence, is tamper-resistant. It consists of a record of transactions that keeps track of the owner of each. This, in particular, solves the issues faced by other technologies—it creates a purely digital currency that is immutable, cannot be copied, and cannot be spent more than once.

Furthermore, the individual units of cryptocurrencies called coins and tokens have all differing purposes and utilities. 

Some are used in exchange for goods and services, some store values, some allow traders to be part of a network’s governance, and some are used for applications such as games and financial products.

Cryptocurrencies: How To Own Cryptocurrencies

The common way for owning cryptocurrencies is by mining, which is used by Bitcoin. Bitcoin mining, simply put, is a process wherein computers solve complex puzzles to verify the authenticity of transactions on the network. These miners or owners of these computers often receive crypto as rewards for mining. In some ways, this can be energy-intensive.

Now, developers have created new and different methods to create and distribute tokens that have a significantly lighter impact on the environment.

For some, moreover, the easiest way to own cryptocurrencies is through crypto exchanges or from another user.

Final Thoughts: Is cryptocurrency a good investment?

Investing in cryptocurrency is a rather risky decision, especially because of its volatility. More so, if you do not inherently understand how it works or how to manage them correctly, you will more likely be de[rived of its potential.

For this reason, it is important to do your own research, study the crypto market, and turn to educational websites that tackle everything crypto.