Cryptocurrency may be a popular term in the financial industry, but it may not seem easy for many newcomers. If you are a beginner in trading or investment and are interested in cryptocurrency, this is the place for you. Many people want to understand that how to use it, and why the world has taken such a keen interest in it.
This blog will break down what is cryptocurrency, explain how it works, and why it’s gaining so much attention.
Understand what is cryptocurrency
Crypto, also known as digital or virtual currency, is a form of electronic money that relies on cryptography to ensure security. Cryptocurrencies are not physical currencies, like the US Dollar and Euro. You cannot hold Bitcoin but can be stored in a digital wallet.
Decentralization
Decentralization is the most important characteristic of crypto exchange, which means a government or central bank does not control it. Cryptocurrencies operate instead on a technology known as blockchain, an open ledger maintained by many computers. Cryptocurrencies are, therefore, transparent and secure, preventing fraud.
Important Cryptocurrency Features
Digital and decentralized systems exist exclusively online and are not controlled by central authorities.
Secure and transparent: Blockchain technology and cryptography ensure secure transactions.
Peer-to-peer Transactions can be made between users directly without needing an intermediary like a financial institution.
How Does Cryptocurrency Work?
Now that you know what is cryptocurrency, let’s look at how it functions. The three main components of the cryptographic currency working process are blockchain technology (known as cryptography), mining, and cryptography.
Blockchain Technology
The backbone of crypto assets is blockchain. Imagine it as an electronic ledger or book of records that tracks all transactions made with a certain cryptocurrency. A block is created when a crypto transaction is completed.
The block is then attached to a previous chain to create the blockchain. This chain, which is stored on several computers, makes it impossible to tamper.
Each block contains the transaction details (e.g., time, date, amount, etc.).
A hash is a unique identifier.
The link between the blocks is made by linking together the hash of previous blocks.
This system is extremely difficult to hack, as each transaction has been recorded on many computers (also referred to as nodes). If someone tries changing the data on one block, it will not match the other blocks in the chain, and the change is rejected.
Cryptography
Cryptography ensures that cryptocurrency transactions are secure. It uses complex mathematical algorithms to encrypt and unencrypt information. You can make a payment, and your data will be encrypted. It is then stored as blocks, which are checked by nodes within the network.
- Security: Transactions are secure, and they cannot be easily manipulated.
- Anonymous transactions: Even though your transactions can be seen on the blockchain, your identity remains anonymous.
Mining
Mining is how new crypto coins are created, and transactions are added to the blockchain. When a user makes a payment, miners use computers to solve mathematical problems. These complex calculations confirm the transaction. Miners receive new cryptocurrency in exchange for their labor.
Bitcoin is a good example. Miners are rewarded Bitcoin every time a new block is added to the blockchain. Mining takes a great deal of computing power, energy, and time. For this reason, it is mostly carried out by large mining farms.
Popular Cryptocurrencies
There are thousands available, but we’ve selected a few you may already be familiar with.
Bitcoin (BTC)
Bitcoin is a cryptocurrency that was created in 2009. Satoshi Nakamoto, a person or group who is anonymous, was the creator of Bitcoin in 2009. Bitcoin is sometimes called “digital gold” due to its limited supply. There will only ever be 21,000,000 Bitcoins.
Ethereum (ETH)
Ethereum is a blockchain currency platform for developing decentralized apps (DApps) or smart contracts. Ether is Ethereum’s crypt asset, which was launched in 2015. According to the market capitalization, it’s also the second-largest virtual currency.
Ripple (XRP)
Ripple is distinct from Bitcoin and Ethereum as it focuses on facilitating fast, cross-border payments between financial institutions. Its cryptocurrency, known as XRP (pronounced “ripple”), is used in these transactions.
Litecoin (LTC)
Litecoin is a version of Bitcoin that was “lighter” in 2011. It was created, by Charlie Lee, a former Google employee, in 2011. It’s faster to process transactions and is often called the silver to Bitcoin gold.
How to Get Started with Cryptocurrency
To help you start, here are a few steps to follow if you want to own a digital currency.
Choose a Cryptocurrency Exchange
A cryptocurrency trading platform is a place to buy, trade, and sell cryptocurrencies. Popular exchanges include:
- Coinbase
- Binance
- Kraken
You can create an account on these platforms, deposit money (usually in fiat currencies like USD or EUR), and then purchase cryptocurrency.
Conclusion:
Cryptocurrency is a revolutionary financial tool that offers a secure and decentralized way to conduct transactions. Although it may appear complex initially, the basic concepts are simple. Cryptocurrencies are based on blockchain technology and use cryptography to ensure security. Either individuals or groups also mine them.
Beginners should approach crypto assets with caution. They must learn the ropes and remain informed. You can start your journey into digital currencies with the right tools and knowledge.
