In short, Cryptocurrencies operate on decentralized networks, typically using blockchain technology, meaning they are not controlled by any central authority like a government or financial institution. It seems to be confusing, but it is not. Lets understand what cryptocurrency is exactly?
Today, we are going to discuss the topic “what is cryptocurrency?” In this article, we will give the cryptocurrency definition, how it works, different cryptocurrency coins, and the best coin to invest in.
Cryptocurrency, also called crypto, is a virtual and digital form of currency which uses cryptography to make the transactions secure. There are no central or regulating authorities that control cryptocurrency but have a decentralized system which can record the transactions and issue new units.
Here, we are going to learn what is cryptocurrency in simple words and learn about the technology that it works on. There are various factors in cryptocurrency that you need to learn about before jumping to the investment part.
We will also discuss how you can store your crypto after purchasing it and what you can purchase with it. There are various benefits that you get from cryptocurrency over centralized money.
Let’s now take a look at the concept that is cryptocurrency.
What is Cryptocurrency? Information About Crypto Coins
Briefly, with digital payment systems, users do not have to rely on banks for verifying transactions. Cryptocurrency is basically that peer-to-peer system which helps users to send and receive payments from anywhere to anywhere.
Crypto payments are digital entries in an online database that describe various specific transactions unlike the physical money that needs to be carried around in the real world for exchange.
Cryptocurrency is a digital currency used for daily chores. It received this name because the transactions are verified using encryption. Here, advanced coding is involved to store and transmit the data between different wallets and to public ledgers. The major objective of applying encryption is to offer safety and security.
To learn more about cryptocurrency in simple words, we will talk about Bitcoin which was the first ever cryptocurrency, launched in 2009 by an unknown entity i.e. Satoshi Nakamoto.
Now, we will understand how it works and a few crypto coins will be mentioned.
How Does Cryptocurrency Work and What Technology is Used?
The technology used here is Blockchain technology which is basically a distributed public ledger. It holds a record of all the transactions being made that the currency holders also have.
Cryptocurrency units are created by completing a process called mining. This process requires users to resolve complicated mathematical problems using the computer power to generate more coins. It is also possible for users to purchase crypto coins from brokers and store them or spend them via cryptographic wallets.
While understanding cryptocurrency, it is important to know that owning cryptocurrency means there is nothing tangible that you have. You only have a key using which you can move a record from one person to another without having to use a third-party.
Even though cryptocurrency was launched in 2009 and has been around since then, cryptocurrencies and blockchain applications are emerging financially.
Now, let’s take a quick stroll through the advantages and disadvantages of this currency.
Pros and Cons of Cryptocurrency in Digital World
First, we will discuss the benefits:
Inflation Protection
There are various cases where the value of a lot of currencies have declined due to inflation. If we talk about cryptocurrency, there are a lot of people who believe that it will offer protection to them against inflation. If the money supply grows and takes over the growth in the supply of BTC, the price will increase. This is how a lot of other cryptocurrencies also protect people against inflation.
Faster Transactions
Another benefit of cryptocurrency is that you can easily and quickly transfer funds to your loved ones. All the transactions made via cryptocurrency are completed in a matter of minutes which is attractive for many people. Whereas the traditional and banking methods for transferring money take about 3-5 business days.
Cost Effective Transactions
With cryptocurrencies, the transfer of funds all around the world becomes easier. That is because the transaction fee charged by cryptocurrency transfer is minimal to zero. With this, the need for third parties for confirming transactions is eliminated.
Decentralized Currency
A decentralized model is represented by cryptocurrencies for money. There is no control of government organizations and the coin’s flow is not set by them. This makes the cryptocurrencies safe and worthy.
Transparency
Blockchain has a decentralized nature and due to that, users can view the money that they are transferring by simply going through the blockchain explorer. With this open and transparent system, investors feel relieved also because it is corruption-free.
What Are the Disadvantages of Cryptocurrency?
Volatile Market
In the cryptocurrency market, there is high volatility and it is subject to various significant price fluctuations. It is possible that profit opportunities might present themselves, but there are various substantial risks as well.
Regulatory Uncertainty
Cons of cryptocurrency holds a regulatory disadvantage since the landscape surrounding crypto is like that. It is still evolving and can impact the value of cryptocurrencies making it difficult for investors to adopt it.
Cyber Threats
For cryptocurrencies to operate, a digital environment is required which is prone to cyber threats. With these risks comes the threat of hacking, scams, and phishing attacks due to which a lot of funds could be lost.
Limited Acceptance
Even though cryptocurrency is being accepted globally, its adoption as compared to traditional currencies remains limited. Due to the limited acceptance, the liquidity of cryptocurrencies may be affected which later on poses a challenge during the conversion of crypto to fiat currency.
After understanding the pros and cons of crypto, aren’t you even a bit curious to know what will happen with crypto in the upcoming years?
Future of Cryptocurrency: Is It Bright or Will it Go Dark Over Time?
In the future, the need to develop a virtual or digital currency can be seen with the fact that the Federal Reserve chairman has shown interest in crypto regulation. However, there will be a need to regulate it with proper norms and guidelines. A legislation was passed for cryptocurrency helping in reduction of taxes and boost the regulation.
Cryptocurrency has brought a technological revolution which the governments are also promoting. The crypto market is growing because companies have also started taking payments in cryptocurrencies leading to a bright future of cryptocurrency. Moreover, the Blockchain technology is also seen as a safe space because there have been no hacking incidents.
A lot of people expect a good future in cryptocurrency. Liquidity needs are very important for various companies as compared to profits. That is because companies are not able to meet their current liabilities due to the liquidity crisis. Finances can easily be accessed by consumers in the future which will promote microfinance. Cryptocurrency can also solve various tax problems because all the transactions will be recorded in a ledger on the Blockchain.
In India, there has been a Cryptocurrency and Regulation of Official Digital Currency Bill passed in 2021 showing that the future of this digital currency will grow.
Therefore, the growth of this industry in the future is at large. The security, protection, and safety measures are important for investors and a good amount of government regulations have been identified in several countries. However, it is also seen that the level of corruption and taxes increase when these regulations are imposed.
According to the Indian culture and environment, it is estimated that in the next 5 years, the economy might not be able to adopt cryptocurrency because the processes are prolonged. Thus, the future of cryptocurrency in India is still not decided.
Let’s now take a look at a few crypto coins.
List of a Few Cryptocurrency Coins Examples
In the market, there are thousands of cryptocurrencies but there are a few best ones that are mentioned below:
- Bitcoin – Launched in 2009 and became the first ever cryptocurrency which is still being traded pretty commonly. It has increased its potential over the years.
- Ethereum – This crypto coin was developed and launched in 2015 on the Ethereum blockchain with the crypto coin Ether (ETH).
- Litecoin – Litecoin is a similar cryptocurrency to Bitcoin but is more quickly moving towards developing new innovations. This includes quicker and better payments and processes more transactions.
- Trillioner – This crypto coin was launched in 2023 and has skyrocketed since the day it was launched.
Concluding Point
The topic “what is cryptocurrency” is quite an important topic to understand before moving towards investing in any crypto. The crypto world has great potential but without knowing what it means, how it works, and what type of crypto coins there are, it can be very confusing for new investors.
Moreover, after learning about cryptocurrency in simple words, it is important to also know which coin should you invest in or is trending in the market. Currently, TLC coin is trending in the market which we have explained here.
Next Read: Top 10 Crypto Companies That You Can Trust
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