Are you trying to figure out crypto currency and how it works? Read this article to learn more with our cryptocurrency 101 guide.
Cryptocurrency usage has drastically risen in recent years. In spite of its increased popularity, though, not everyone actually understands how this type of currency functions or what it can be used for.
Not sure where to start? Don’t worry, we’ve got you covered.
Let’s take a look at everything you need to know about cryptocurrency 101.
Cryptocurrency 101: What Exactly Is It?
Many people are familiar with this term, but not everyone knows exactly what it means. Put simply, cryptocurrency can be thought of as a digital coin that has inherent value.
Similar to how a silver dollar coin is worth one US dollar, one dollar’s worth of cryptocurrency carries the same value in real life.
This type of currency was created to be both secure and convenient. The major issue here, though, is that having a form of currency that is entirely digital requires a large handful of safeguards to prevent it from being abused.
For example, it’s just anyone were able to generate their own cryptocurrency at an extremely high rate, the overall value would crash and it would be worth nothing. The same principle is why the United States simply can’t print more money to handle its debt obligations.
Why Is It Important?
Digital currency usage has changed the landscape regarding how money is converted to different types across the world. For instance, an individual within the United States could send money to someone in the United Kingdom and have it instantly converted for a small fee.
As you may expect, this allows people to avoid the inconvenient and often costly fees that people experience when converting one currency to another.
But, this is only one potential use for cryptocurrency. One of the most notable attributes is the anonymity that it provides users, as it allows them to send money wherever they want without being readily identified.
Unfortunately, a byproduct of this feature is that it’s become increasingly enticing for cybercriminals to use as a form of payment. This is particularly true during ransomware attacks, where an individual’s data is compromised and isn’t restored until a ransom is paid in cryptocurrency.
So, it’s crucial that development continues in order to optimize how this form of currency functions.
What Is the ‘Blockchain?’
This is another one of those terms that many people of heard of but aren’t quite familiar with. The blockchain involves tracking the entire history and movement of a digital currency for the purpose of preventing the development of counterfeit cryptocurrency.
To help facilitate this, blockchains are both decentralized and open source.
The latter term refers to the fact that the programming behind a blockchain is made available to the public. The former term declares that anyone from any location can operate a blockchain, which prevents a single party from tampering with the network.
To break this term down further, let’s take a look at both of its parts.
The block refers to a collection of data that includes information on the sender and receiver, the amount of money that was transferred, etc. You can think of this information as being packaged into a container that can no longer be opened once the transaction has been documented.
So, these blocks of information are meant to ensure the security of the transaction.
They are then added to the chain, which refers to a string of digital blocks that are used to document the history of the transaction.
So, blockchain technology simply strings together securely collected data on transactions in chronological order.
In order for cryptocurrency to be generated, users need to take advantage of powerful computers to package transactions into blocks and add them to an ongoing chain. It also takes a significant amount of resources to secure this chain.
Although a handful of different mining systems exist, there are two that are predominantly used: proof of work and proof of stake.
A proof of work system involves solving complex mathematical puzzles in order to determine the next block in a given chain. Although this can produce highly accurate results, it’s not very time-efficient.
In a proof of stake system, users are asked to place their cryptocurrency in a special digital wallet. Information from the coins is then gathered and used to mine new coins through the development of additional blocks.
This process is far more efficient, but its downside is that very few users understand it enough to use it optimally.
Fortunately, there’s almost always an incentive offered to users who participate in a proof of stake system.
What Else Can I Use Cryptocurrency For?
In addition to remaining anonymous or transferring money to another party, you can also use cryptocurrency to make purchases at various merchants, including stores, online retailers, etc.
So, this type of currency has already paved the way toward becoming a mainstream payment method.
Before getting involved in cryptocurrency use or investing such as through a Bitcoin option chain, though, it’s important to research your chosen cryptocurrency as much as possible to ensure that the process goes as smoothly as possible.
Understanding Cryptocurrency Can Seem Difficult
But it doesn’t have to be.
With the above information about cryptocurrency 101 in mind, you’ll be well on your way toward making the decision that’s best for you.
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