Monday, 16 April 2018

Cryptocurrencies Explained

Cryptocurrencies are growing in popularity these days. In fact, they’ve become a global phenomenon known to a lot of people worldwide. Though still somehow not understood by most people, the government, banks, and many other companies truly recognize its importance. If you search the web, you will find news and information pertaining to cryptocurrencies and digital currencies.
However, despite the press releases and the noise, an overwhelming majority of people, including developers, bakers, scientists and consultants have a limited knowledge about it. They even lack the understanding of the basic concepts.
To help you understand the fundamentals of cryptocurrency, explained here are some of the most important points to keep in mind regarding the topic.

What exactly is Cryptocurrency?

Cryptocurrency is a form of virtual or digital currency designed to be secure and, in most cases, anonymous. It also works as a medium of exchange. It utilizes cryptography to verify and secure online transactions and control the creation of new units of a certain cryptocurrency. In essence, cryptocurrencies are actually limited entries in a database that not anyone can change unless particular conditions are fulfilled.
The Cryptocurrency Anatomy

Though there can always be exceptions to the rule, you can find several factors that make digital currency different from various financial systems of the past. To fully understand cryptocurrencies, it is important to know its unique characteristics and what makes them unique. These include:
   ·        Cryptographic. Cryptocurrencies use a system of cryptography or encryption to verify transactions and control coin creations.
   ·        Digital. Unlike those traditional forms of currency that are defined by a physical object, cryptocurrencies are digital. A digital coin is stored in a digital wallet and then digitally transferred to the digital wallet of other people. There are no physical objects that ever exist.
·        Decentralized. Majority of currencies that are circulation are mainly controlled by a centralized government. This means that the creation of such currencies can become regulated by a third party. On the other hand, the transactions and creation of cryptocurrency are an open source, relying on peer-to-peer networks. Not a single entity can affect the virtual currency.
·        The use of Proof-of-work. Many cryptocurrencies utilized a POW system. Proof-of-work schemes use a computational puzzle that is easy to verify but hard to compute. This is necessary to limit the possible exploitation of digital currency mining.
·        Pseudonymity. Cryptocurrency owners keep their virtual coins in a digital wallet that is encrypted. The identification of the coin holder is stored within an encrypted address they can control and not attached to the identity of a person. The link between you and your digital coins are pseudonymous instead of anonymous.
·        Open Source. Digital currencies are usually open source, which means that anyone can join or use the network or developers are able to create APIs without any fee.

How Does Cryptocurrency Work?

Cryptocurrencies are self-contained systems that can control and monitor every unit of cryptocurrency. Every individual unit serves like a piece of data that moves around a network. The units of cryptocurrency can be as small as 0.01 dollars or as big as one billion dollars.
They use different timestamping schemes in order to avoid the need for any third party just to verify transactions that are added to the blockchain ledger. The most popular digital currency, Bitcoin, uses a POW scheme, known as Mining. Other virtual currencies obtain a similar result with different approaches that are sometimes labeled Consensus Platforms or Consensus Protocols.
Individuals who confirm transactions through breaking cryptographic codes are referred to as miners. Mining is known as the process of creating digital coins.

The Best Cryptocurrencies

The first cryptocurrency to efficiently provide proof of the viability of a cryptographic-backed money supply that’s open to everyone is Bitcoin. From the viewpoint of public adoption and market capitalization, Bitcoin is the most popular cryptocurrency in today’s market. But, it is important to note that there are nearly one-thousand different types of virtual currencies available in the market today. Among those many choices, different digital currencies provide more benefits than others.
Newer digital currencies like Ether are referred to as the crypto assets. They utilize their native token ether in order to power a decentralized digital machine that can execute P2P smart contracts. Some cryptocurrencies like Litecoin also deliver a much faster confirmation time other bitcoins. Just like when you’re shopping for a new phone, the best cryptocurrencies are those that fir your specific requirements.

Investing in Cryptocurrency

When bitcoins were first introduced in 2009, every bitcoin was valued just less than one dollar for a while. Then, in 2014, 1 bitcoin was valued more than one-thousand dollars. Today, the price of a single bitcoin is almost $8,000.
The market of cryptocurrency is just less than a decade old and it still remains small compared to the world’s global financial market. With the size and nascency attributes of cryptocurrency, investors should be reminded of the fundamental rule of investing in the market: the lower the return, the lesser the risks and the higher the return, the greater the risks.

Buying Cryptocurrency

Cryptocurrencies are gaining so much popularity in the market today. This leads to many providers of digital currencies available. Cryptocurrencies can be purchased at many different stores or providers online. However, you must ensure that you have a plan on how you are going to store the cryptocurrency in a digital currency before buying.
For first-time buyers, they may find the buying process of cryptocurrencies to be quite overwhelming and difficult. However, they also consider it to be very rewarding. Purchasing cryptocurrency through several reputable online providers can be done with the use of a debit card or credit card.

NOTE: Just like everything in life, there may be tax implications to cryptocurrencies. Therefore, it is a must that you fully understand those tax implications before buying and using digital currencies. Make sure that you understand the process and how everything works, so you would fully benefit from using digital currencies. 
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