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What is cryptocurrency?
Cryptocurrency has been a hot topic of debate among businesses, government, and the general public for a while now. It’s similar to currencies like dollars and euros in that it holds value and allows you to make purchases. It’s also quite in terms of creation and use. So, what is cryptocurrency?
It’s totally possible you’ve heard the word cryptocurrency before, but how much do you actually know about it? What is Cryptocurrency exactly? The term has caused confusion for many, and the world of digital currencies can be tricky to understand.
In hopes of clearing up some of that confusion, we’ve prepared a short guide on cryptocurrency that will give you the basics on exactly what it is, how it’s created, and what its advantages are.
What is cryptocurrency?
Okay, so what is cryptocurrency? The simplest explanation is that cryptocurrencies are a form of digital money which allow you to make purchases online. Unlike regular currencies, they only live online and aren’t backed or controlled by banks and governments. This has advantages as well as drawbacks, which we’ll talk more about later on.
Cryptocurrencies are decentralized and run by a network of computers instead of a single person or a company. The money you own is stored in a digital wallet you keep in the cloud or offline on a PC and can be sent to someone via a computer or a mobile device like a smartphone. Each transaction is recorded in what is called a blockchain that is publicly available to all currency holders.
What is mining?
Now that we have answered the question “What is Cryptocurrency?” how do you get your hands on some? Cryptocurrencies are generated through mining. Mining is done by computers, which try to solve a complex math puzzle known as a hash.
People all across the globe compete to be the first to solve the hash, with the winner getting a certain amount of the cryptocurrency that’s being mined. The process requires specialist hardware that works around the clock, so even if you own a PC with a fast GPU, mining likely won’t be worth your time — sorry about that.
Mining isn’t the only way to get cryptocurrencies, though. The easiest way is to buy them using your local currency on online marketplaces, where you can also sell them to other users. Just like with stocks and gold, for example, the value of a cryptocurrency is determined by supply and demand and is fluctuating all the time.
The most expensive one is Bitcoin, which costs around $5,200 at the time of writing. Its price has increased drastically over the years. Back when it was first introduced, you could get one for only a few cents.
Advantages and drawbacks of cryptocurrencies
One of the main advantages of cryptocurrencies is that they provide anonymity. Although each transaction is recorded and displayed publicly, you don’t have to share your personal info such as a full name, address, and so forth when sending and receiving payments.
Cryptocurrencies are popular among criminal organizations, as the money can’t be traced back to them.
As you can imagine, this has its drawbacks as well. Cryptocurrencies are popular among criminal organizations, as the money can’t be traced back to them. That’s one of the reasons why governments aren’t big fans and would like to set up a more transparent way of using cryptocurrencies. Their popularity among shady characters is said to be a key factor for the increase in value we’ve seen in recent years.
Doing business with cryptocurrencies also has the advantage of being cheap. Although some fees might apply, they are minor and likely less than those charged by banks and other financial institutions. Additionally, cryptocurrencies can’t be counterfeited, unlike physical currencies.
The security of your currency can also be a potential drawback. The money you own is stored in a digital wallet that can be saved in the cloud, meaning someone could hack into your account and steal it. The other option is to store it offline, on a computer, for example, where you run the risk of losing it in case your device stops working or gets stolen.
You also have to keep in mind that all transactions are irreversible and there is no arbitration service or oversight where you can complain. What this means is if you’re doing business with a dishonest retailer online and don’t get the goods after paying for them, you really can’t do much about it. This isn’t the case with other payment methods such as credit cards, where fraudulent charges can be reversed.
Biggest cryptocurrencies you should know
Bitcoin is the biggest and most well-known cryptocurrency with millions of users across the globe. It was founded by someone with the nickname Satoshi Nakamoto in 2009. However, it’s not the only one, as there are reportedly around a 1,000 of them to choose from.
Despite the large number, there are only a few really big cryptocurrencies. You’ll find the list of the ten largest ones in terms of market capitalization below, based on the data provided by CoinMarketCap.
As you can see, Bitcoin is way ahead of the competition. Based on its lead, it will likely remain the most used and valuable cryptocurrency in the world for quite some time.
Want to learn even more? Be sure to check out the following guides from the Android Authority team:
- What is Bitcoin?
- What is IOTA?
- What is Ripple?
- What is Dash?
- What is Ethereum?
- The best Cryptocurrency apps
- Here are 5 Cryptocurrencies worth watching
- Bitcoin vs Bitcoin Cash – what’s the difference?
Now you know what cryptocurrency is. Cryptocurrencies certainly aren’t going anywhere in the near future. Although some smaller ones could eventually die out, the larger players in the market like Bitcoin and Ethereum are here to stay.
Cryptocurrencies can be quite volatile, as their value can go up or down hundreds of dollars in a single day.
They’re not just a different method of payment, but can also serve as great investments. The value of Bitcoins, for example, has been going up constantly ever since their introduction.
However, cryptocurrencies can be quite volatile, as their value can fluctuate by as much as a few hundred dollars in a single day. You could potentially either make or lose a lot of money in a short period of time. The risk and potential rewards are huge.
Have you ever used cryptocurrencies? Which ones? Let us know in the comments.