Cryptocurrency is a trending topic nowadays. Cryptocurrency can be used to make purchases online however, currently, they are not accepted by most businesses. People invest in cryptocurrency hoping to make money out of it. At present, there is a rise in demand for cryptocurrencies for investment purpose mainly. Now if you don’t have a fair idea of what is cryptocurrency and how it works. We have penned this blog to help you understand what is cryptocurrency and how cryptocurrency works?
What is cryptocurrency?
A simplified cryptocurrency definition: Cryptocurrency is a secure digital decentralized currency. Being decentralized is what differentiates it from the currency that we currently use for daily transaction. Being a digital currency, it does not have any physical form. It is stored in a digital wallet. To buy cryptocurrencies you need to exchange traditional currencies for them.
The traditional/fiat currency that we currently use is under government regulation. All these currencies stand for debt, whereas cryptocurrency does not represent debt. Cryptocurrency represents itself. The value of cryptocurrencies is determined by how much someone is willing to pay for it.
How does cryptocurrency work?
Cryptocurrency works based on the blockchain technology. Blockchain or the decentralized ledger is a public transaction database. Cryptocurrency transactions are recorded on the online decentralized ledger. The decentralized ledger is the very essence of cryptocurrency. Although a public transaction database is used, each individual transaction is secured by cryptography. Cryptography is the method used to secure cryptocurrency transactions, coins and prevent fraud. Cryptocurrency transactions are irreversible, public and usually cannot be hacked. The fact that cryptocurrency transactions are secure is what makes it intriguing. There is a negative side to this highly secure cryptography technology used to secure cryptocurrency transactions. The cryptocurrency transactions cannot be traced. Thus, transactions involving illegal purchases and the purchase of highly regulated goods cannot be traced. Also, the buyer cannot be identified. This is a problem with the highly secured nature of the transaction.
How many cryptocurrencies are there in the world right now?
There are more than thousands of cryptocurrencies. Bitcoin is the most popular cryptocurrency. Bitcoin is, in fact, one of the first digital currencies to use the peer-to-peer technology. Ethereum, XRP, Tether, Cardano, Stellar are some of the popular cryptocurrencies.
What is the difference between cryptocurrency and digital currency?
The difference between cryptocurrency and digital currency is that cryptocurrency is decentralized. Digital currency does not have any physical form it only exists in the digital world. Digital currency has all the properties of a traditional currency as well as is issued and backed by the government. On the other hand, cryptocurrency is also digital but it is not issued or backed by the government.
Cryptocurrency is secure but not very safe
The blockchain technology and cryptography make cryptocurrency transactions very secure. It is, in fact, far more secure than other forms of digital transaction. However, cryptocurrency is not very safe since it is not regulated by the government and backed by federal insurance. Market volatility is another factor that makes cryptocurrencies unsafe. Similar to stock markets, the value of cryptocurrencies tends to rise and fall sharply. Cryptocurrency investors are sometimes tricked by fake cryptocurrencies. Some new cryptocurrency companies are a complete scam. These companies trick investors into buying their coins and later disappear with the money.
Future of cryptocurrency
Cryptocurrency can be used to buy goods and services. Presently it is lucrative for their market value. Currently and in the near future, more and more people will be investing in cryptocurrencies hoping to get high returns. Just like the stock market, it is crucial to have a clear picture of cryptocurrency and the risk factors before investing in it. Those planning to invest in cryptocurrency should plan wisely.