Cryptocurrencies have taken the world by storm and in the process painted a clear picture on why they are the currency of the future. While some people may claim to know what this new form of payment is all about, a majority are still in the dark, amidst an evolution that has seen cryptocurrencies become a preferred payment option. In this guide, we are going to simply explain what is a cryptocurrency?
So I get it, but what is a cryptocurrency?
A cryptocurrency is a form of digital currency that is distributed over the internet. It operates much like any form of digital cash, but without any central authority controlling it. Also known as virtual currencies, cryptocurrencies allow for seamless, direct and fast transactions between parties regardless of location.
Cryptocurrencies are different from fiat currencies (EURO, USD, and GBP) in the sense that holders assume full control overpayments as well as balances. Total control means one does not need a central authority to validate transactions. With fiat currencies, credit card companies and banks usually act as central authority or gatekeepers on any deal that one is to partake.
Satoshi Nakamoto is accredited for creating the first cryptocurrency, bitcoin, as well as the underlying blockchain technology in 2008.
Cryptocurrencies can be envisioned as applications running on top of a cryptographic invention that in this case is the blockchain technology. Blockchain is the underlying technology that powers many applications of which cryptocurrencies is one of them.
Banks maintain a database of people’s money that is usually susceptible to hack attacks. However, that cannot be the case with cryptocurrencies as there is no central authority maintaining records of people holdings. In addition, transactions on cryptocurrencies are usually conducted in a distributed fashion which makes it hard for hackers to track where funds are moving to and from.
How to Get a Hold of A Cryptocurrency?
Mining: Some cryptocurrencies such as Bitcoin and Monero can be obtained through a process called mining. In this case, people connect powerful computers to accrue the desired processing power to be able to solve complicated puzzles.
People are usually incentivized with new coins, transactions fees or both for getting the correct answer to a puzzle. Miners are also incentivized to ensure transactions on a blockchain are valid. They do so by ensuring people trying to send coins have enough to send.
Buying: You can get hold of a cryptocurrency of choice by buying them using fiat currencies from cryptocurrencies exchanges that facilitate buy and sell operations.
What Is the Purpose of Cryptocurrencies?
Cryptocurrencies can be envisioned as another form of money that can be used for various purposes. For instance, it can be used to buy goods and pay for services. Some people and merchants accept cryptocurrencies as a mode of payment in addition to fiat currencies.
Virtual currencies are becoming increasingly popular as a means of sending and receiving payments at low costs and high speeds. For instance, Litecoin was once used to send $99 million, and the sender only incurred $0.40 in transaction fees.
Cryptocurrencies are also being used to make anonymous transactions that users don’t want other people to know about. Monero and Zcash are the most popular in this case given their focus on privacy. In this case, one can use the two to send money without having to explain to a bank why they are sending and to who they are sending.
Digital Currencies have also emerged as reliable tools for bypassing strong censorship. It is common for people bank accounts and assets to be frozen. Cryptocurrencies act as a censorship-resistant alternative for storing wealth that only one person can access and control with the help of a private key.
I am holding some crypto!!! Now what?
As time goes on, we see more and more places which accept crypto as a payment, here is an article on where to spend cryptocurrencies.
Future of Cryptocurrencies
Cryptocurrencies popularity is expected to continue growing as people yearn for fast, secure and low cost means of sending and receiving money. As blockchain technology continues to evolve, it could be a matter of time before this form of payment finds its way into the mainstream industry.
New in this world? Take a look at the ultimate beginner’s guide on how to invest in crypto.