Since 2008, Cryptocurrency became a buzzword and represents the advanced evolution of money that can either be invested or used as an alternative currency. It gave freedom from the banking authorities to control and manage transactions.
Here is everything you need to know about the fundamentals of Cryptocurrency and how it works:
What is Cryptocurrency?
A cryptocurrency is a decentralized form of digital currency used for conducting online transactions. You can transfer the money to the other person via private and public keys, without any intervention of a central authority, which means no transaction fees will be charged.
There are well known cryptocurrencies such as bitcoin and ether, which you can buy via credit card and store it in a digital wallet or online.
Difference between Cryptocurrency and traditional currency
Both currencies are used to buy goods and services and transfer. However, Cryptocurrency differs from conventional currency (dollars, pound, etc.) in some ways which are as follows:
- Central authorities don’t support cryptocurrencies.
The government doesn’t issue digital currencies. Therefore Cryptocurrency stored in a digital wallet doesn’t offer the same security as the money in a bank account. In case the website that provides digital wallet services closes down or goes on hiatus, you may not be able to recover your money, unlike traditional currency.
- The Digital Currency Value is Dynamic
Unlike traditional currency, cryptocurrency’s value changes at any time, making it inflexible. You may have purchased at a higher cost only to find out later that the value has depreciated, and there is no guarantee if the value is going to increase or not.
How does Cryptocurrency work?
Cryptocurrency works using blockchain technology that consists of a shared network of computers equipped with special software, responsible for tracking digital currency transactions. Whenever a transaction is made, the system monitors the sender’s key similar to an account number, the recipient’s key, and the amount of money transferred. The information is transferred to a public ledger, and copies of the information are made visible to the entire network for approval. Thereafter, the block of records is generated in an increasing number. To ensure the validity of the transaction, the software makes sure that only those transactions are sorted into valid blocks, creating a chain. Hence the name, blockchain!
Properties of Cryptocurrency
- Irreversible:
Once the transaction has been made, it can’t be reversed or changed under any circumstances. Therefore, investors have to be careful when making a transaction.
- Pseudonymous:
The sender’s and receiver’s identities remain anonymous. The transactions aren’t linked to real-world users. Instead, a 30 character random address is used to transfer money to another person, and this address won’t help you in tracing the person.
- Fast World Wide Transaction
You can send the bitcoin to the person anywhere across the world within minutes without any delay.
- Secure
The digital currency is fully secure using public-key encryption. Anyone who wants to gain access to the cryptocurrency must have the private key obtained by the owner. In this way, the cryptocurrency remains protected from intrusions, breaches, and unauthorized access.
Should You Use Cryptocurrency or not?
Cryptocurrency became popular because it’s a decentralized currency available for anyone, which can neither be reversed nor faked. However, at first, it’s complex to set up and understand how it works. While it has proven to give a vast fortune to some people overnight, you should be aware of the risk linked to the cryptocurrency, considering how often the currency’s value fluctuates and may result in potential loss of money. Moreover, the anonymity factor also gives birth to illegal activities and the black market, so you should be careful when choosing to buy cryptocurrency.