Lots of people shy away from new technology such as cryptocurrency since it can be overwhelming. There’s a lot of unfamiliar jargon and processes that are hard to comprehend, stopping people from wanting to understand how it works. These problems can prevent the mainstream adoption of cryptocurrency.
That’s why here at CryptoShimbun, we strive to make the subject of cryptocurrency easier to understand. Learn all you need to know about the new age of money, including basic definitions, processes and the latest cryptocurrency news.
Check out below the topics you’ll learn on this page!
What is cryptocurrency
Cryptocurrency is a virtual currency secured by cryptography that can only be accessed and exchanged online. It’s a medium of exchange that doesn’t have a physical body. Cryptocurrencies are built with blockchain technology, which boasts decentralized networks that don’t rely on a single point of control.
How cryptocurrency works
Cryptocurrency involves a lot of systems to work. To make secure payments online, it makes use of various encryption algorithms and cryptographic techniques. At the centre of cryptocurrencies lies blockchain technology that is utilized to keep a public ledger of all transactions.
A digital coin serves as a medium of exchange that performs similar to cash. The difference lies in the lack of central authority controlling the movement of money. In the current monetary system, you’ll need the bank to verify the legitimacy of the exchange before it passes through. The bank keeps track of all transaction records and it is kept private.
In cryptocurrency, the singular point of authority is decentralized and distributed to all members of the network. Instead of the bank keeping track of all transactions, all crypto exchanges are recorded on an open-source public ledger called the blockchain.
To ensure the network’s transparency, all users can see the public ledger where all transactions from the very first Bitcoin bought is recorded. Thousands of people need to reach a consensus before a transaction is validated. If one validator disagrees with the majority, the exchange will not pull through. This protects the network from cyber attacks so if someone were to change anything in the records, they’d have to hack all the computer nodes that validate the system.
Once a transaction is verified, miners add it to a block which is then chained to the one that came before it, making the blockchain. Once a block is uploaded, its content cannot be altered, making it immutable. Together, this string of blocks becomes the ledger of all transactions where you can find all exchanges ever made with cryptocurrencies.
Features of cryptocurrency
No central point of failure
Since the blockchain is decentralized, failure in one computer node won’t disrupt the network since there are others that can take on its role. Unlike in the current system, when a bank encounters an internal error, exchanges won’t pass through and transactions are cut short. You won’t encounter this problem with cryptocurrencies.
Cryptocurrency’s decentralized nature secures it from being shut down by any entity. No government can shut down a blockchain since there’s no point of origin. Thousands of computers spread all over the world make this impossible.
Once a transaction is verified and uploaded on the blockchain, no one can alter it anymore. All blocks contain the hash of the one that came before it. If you want to change the number of Bitcoins sent to an address, you’ll have to hack the previous block and all the ones that came before it. This impossible task makes the blockchain impregnable and immune from any cyberattacks.
History of cryptocurrency
Cryptography has been around for decades, and it’s been used in securing software and other computer processes. But it wasn’t until 2009 that it was used to create the world’s first cryptocurrency, Bitcoin. Satoshi Nakamoto pseudonymously published Bitcoin’s whitepaper online in 2009, birthing the future of the monetary revolution.
Free from any government control, it piqued the interest of people online though only a small community were using it at first. In the succeeding years, its audience has widened although the general public was still fairly oblivious to cryptocurrency.
To outsiders, Bitcoin was a way to transfer money without being detected and traced. It became synonymous to illicit activities online and had a negative connotation. And it was true, criminals were exploiting the blockchain’s pseudonymous characteristic to send money without being detected.
Eighth years later, Bitcoin entered the mainstream media when its price skyrocketed to almost USD$20,000, its highest ever. Though its price has since dropped to half, it has persisted in being part of the current trend. More and more people are joining the crypto craze which contributes to Bitcoin’s rise in price.
What makes cryptocurrency special
When thinking about what makes cryptocurrency special, we need to talk about the misgivings of the current monetary system. Wherever it falls short, cryptocurrency excels. Here are some reasons why cryptocurrencies are the future of money.
Little to no transaction costs
Since cryptocurrencies remove the need for third-party intermediaries, the cost is also lower. If there are any fees, they are minuscule compared to the rates taken by financial institutions.
24/7 access to money
You won’t have to physically go to a bank to make a transaction. Not only are money transfers accessible anytime and anywhere, but they’re also completely hassle-free. You won’t have to fill up forms or line up just to finish a transaction. As long as you have a device connected to the internet, you’re good to go.
No limits on purchases and withdrawals
There is no limit to the amount of money you can transfer with cryptocurrencies. You don’t have to worry about any restrictions or withdrawal limits.
Free to use by anyone
Cryptocurrencies are designed to be used by anyone in the world. You won’t need to fill up any form of paperwork and provide personal information to make use of it. This is especially good for the unbanked population of the world.
Faster international transfers
Since cryptocurrencies aren’t tied to any country, there is no need to go through red tape and endless bureaucratic processes. With digital currencies such as Ripple (XRP), money remittance from one country to another is possible in just a matter of seconds.
What can you do with cryptocurrency?
Each coin is made with a purpose in mind. For example, Bitcoin is designated as the digital gold that is a medium of exchange with a limited amount in circulation. Ethereum fuels its own platform and is used within the network for transactions.
But no matter what the purpose is, all cryptos share the same fundamental basics. After all, they are all digital currencies with no physical body. Here are some of the things you can do with cryptocurrencies:
More and more stores online and offline are incorporating cryptocurrency as a mode of payment. Using Bitcoin, you can now pay for your purchases online and enjoy a cup of coffee from Starbucks.
With crypto, you won’t have to remit money through an intermediary money transfer service. As long as the recipient has a wallet address, you’ll be able to send money to anyone in the world in just a matter of minutes.
Access a network
Some digital currencies are made to be used within a certain network. Ether (ETH) is the best example of this. You can make transactions within the Ethereum network without using cash and bank accounts.
You can earn money by trading coins in the market. This requires intensive knowledge in investing and can be really risky for those who are unfamiliar with it.
People also use cryptocurrencies as a form of long-term investment. Instead of using it for daily purchases, they leave it in their wallets and wait for it to accumulate in price.
Where to buy cryptocurrencies
There are three main avenues for you to buy cryptocurrencies: through exchange platforms, broker sites or marketplaces.
Broker sites directly sell cryptocurrencies to buyers. It offers a faster buying process though costs an extra penny for the convenience. Because of the ease of use and its navigable interface, broker sites are more suited for beginners looking to buy their first crypto.
Exchange platforms are a third-party site that matches buyers and sellers so they can complete transactions. This is where people trade by placing buy and sell orders. Once the site matches you with a buyer or seller, you can proceed with the exchange. This is more ideal for those who are already familiar with the process since the user interface may be too advanced for beginners.
Just like its name suggests, a marketplace is a free-for-all site where buyers find potential sellers and vice versa. It provides a space for direct peer-to-peer interactions and transactions.
Where to store your coins
Once you’ve bought your coins, it’s important to store them in a secure place. That’s what wallets are for. There are two types of crypto wallets, hot and cold. Hot wallets are software that can be accessed online. It’s free and cheaper but it’s vulnerable to cyber attacks.
On the other hand, cold wallets are hardware similar to flash drives. It’s the safest way to secure your crypto though they are not as accessible.
Learn more about these topics in detail here at CryptoShimbun.