What is Cryptocurrency
Cryptocurrency refers to several forms of virtual money that exists and operates on the concept of cryptography and is popular among users for allowing a certain degree of anonymity in transactions, which is more than is possible when using non-virtual currency. Cryptography on its own backdates the invention of cryptocurrency, it is a technology that operates across various technical disciplines, applying mathematical theories and formulas and computer science to writing codes that are used to encrypt data which is then shared between sender and receiver(s). used for encryption of messages, at ATMs and in this case for cryptocurrency and several other applications. Although the anonymity that cryptography allows when using cryptocurrency has resulted in some legal situations of how it could be used for dubious and illegal activities, the technology itself is legal and has proven more useful than not.
How cryptocurrency works
Cryptocurrency was introduced first by a tech mastermind known with the name Satoshi Nakamoto in 2009 with the introduction of bitcoins. Unlike the stock market, cryptocurrency transactions takes place on a decentralized network (platform) where transactions and transfers among investors are done without having to pass through an intermediate client, implying that the regulatory role and control of banks when trading in the stock market is being cut off on the cryptocurrency platform via a technology referred to as peer to peer (P2P) network. Traders in cryptocurrency are called ‘investors’ and despite the term should not confuse anyone to thinking that they are investing directly in the company even though they are indirectly since the validity and existentiality of cryptocurrency is dependent on the amount of people dealing and the value placed on them also determined by this number since it is not controlled by a central body. However, investment is not in the cryptocurrency company because, money converted to cryptocurrency belongs wholly to the investors and is to be traded, spent and mined at their will.
Basic terms involved in cryptocurrency
In order to fully grasp how cryptocurrency operates, some key terms have to be understood. Firstly, the decentralised peer-to-peer system on which cryptocurrency is operated is called a blockchain technology, and its very nature mandates for transparency of funds of each investor, which leads to some basic technicalities like:
Digital wallet: a digital cryptocurrency wallet stores public and private keys that control transactions of cryptocurrency between investors. Look at it like an account that holds all access to one’s investments across several institutions and currency rom which transactions can be made on any of them, hence a digital wallet is controlled by a third party and facilitates access to virtual funds. This access could be in form of a website or an app. The wallet owner must carry out some research before choosing a digital wallet to be sure they can be trusted.
Public ledgers: are accounts on platforms that stores the identity of the owners and the history of transactions made on its digital wallet in encrypted forms. Simply put, it is like a public record kept secure by encryption through cryptography used by the platform.
Mining: cryptocurrency mining is used to refer to how virtual currency transactions are verified and included in the public leger records creating a blockchain. It involves each miner solving puzzles, which could be simple or difficult, resulting in an open system where all miners’ earnings and transactions can be seen at the same time by the others, after mining has been successfully done, a reward of coins is earned.
Coins: Coins are forms of cryptocurrency, just like we have different currency like dollars and euros and so on, each having their unique platforms with their own verification technique and transaction processes. Bitcoins was the first of the coins, several others have been invented like Ethereum, Ripple and so on.
Blockchain: on cryptocurrency network, after each investor conductors a transaction that is mined and saved to the public leger, a block is said to be created, a series of this blocks created and accessed by different people at a time forms a block-chain. Technically a block chain is designed to enable data processed on the network to never be lost. Blockchain is the term used on platforms where bitcoin is mined.
Altcoin: Altcoins stands for alternative coins other than the first bitcoins. Different cryptocurrency networks have come up since the advent of bitcoins in 2009 and are also gaining their own popularity. Network chain formed on altcoins platforms are referred to as altchain. However, bitcoins at date is still the most mined of all cryptocurrency. Some example of altcoins are Ethereum, Ripple, Litecoins, etc.
Wallet address: your wallet address is like a proxy address that is where you send your mined cryptocurrency to and it consist of a series of encrypted keys that are required during verification of transactions.
Exchange: cryptocurrency exchange refers to platforms where you can purchase cryptocurrency and/or exchange one form o crypto coins for another. Some exchanges offer only one form of cryptocurrency and some more than one; they could be a website and have an offline office. Some examples of cryptocurrency exchanges are coinmama, coinbase, changelly, paxful, bitpremier, etc. Cryptocurrency exchanges all have their unique authentication and verification processes. Generally using an exchange will mandate you to provide some form of identification and verification process before you can start using it, there is no standard for level of privacy on exchanges, so it is advised to properly read and understand the terms and conditions before opting for any of them.
There are other terms that will come up during the uses of cryptocurrency, but with these few you can get started on understanding what happens on the cryptocurrency network.
What happens on the cryptocurrency platforms?
. The platform is just a website that avails a means for transaction of different forms of cryptocurrency via a peer-to-peer system and controls and secures mining of cryptocurrency using cryptography. Different platforms exists with their own rules of verification and registration but are all open to anyone and their degree of anonymity. Basically, you decide on your preferred choice of cryptocurrency, a digital wallet that is suited to your lifestyle and/or schedule and one you can trust, and then purchase your cryptocurrency from an exchange, and then mining begins where investors get to solving puzzles, creating blockchains and altchains, growing their cryptocurrency holdings and eventually spending it on things they want.
Cryptocurrency because of its decentralised and peer-to-peer technology has a volatile nature, where its value is hardly steady and fluctuates very often. This is because the value placed on crypto chains are determined by the amount of people mining that coins and the work that is put into mining. This is often a reason for doubt for people who are new or deliberating on whether to invest in cryptocurrency or not, but more people are investing in it and becoming cryptocurrency billionaires through careful and dedicated crypto-trading.
Reasons to invest in cryptocurrency
As mentioned earlier, one of the big reasons people go for cryptocurrency is because of the level of privacy it offers. Unique identity can be used by investors, and the inclusion of cryptography in the concept of crypto trading allows for security of investments, as it will be very difficult for data to be hacked and manipulated on cryptocurrency platforms. Although theoretically possible but practically impossible.
Creation of crypto-millionaires, cryptocurrency investments are booming at the moment, because it allows for diversification of investment. People have contributed to cryptocurrency by developing websites, applications, software, altcoins and so on that work with cryptocurrency. Small investments can be grown into large holdings and that can be viewed as a good business because of the possibility of its returns.
Spending possibility of cryptocurrency, businesses (large and small scale) are increasing including cryptocurrency as a form of payment for their goods and services. Right now, one can book a flight and pay for it using cryptocurrency, pay for hotel reservations, buy food, buy real estate properties and even include their cryptocurrency holdings in their company’s audit. The more accepted cryptocurrency gets, the more appealing it will be to use it.
The blockchain technology: the blockchain technology seems very promising because of its ability to cut off the middleman, its security and speed of processing transactions. Banks can sometimes prove to be a problem for some people with their verification processes and taxes, and since cryptocurrency has been able to cut the need for a banking intermediary in dealing with stocks, it seems a go-to option for those interested. Other than for cryptocurrency, the blockchain technology has proven to be useful across a wide range of platforms, like governmental organisations, land registration and so on with some optimistic future application.
Transparency of transactions: Since cryptocurrency, transactions and wallets are connected to public and private keys rather than to a personal identification, it provides the investors with anonymity and at the same time openness of dealings, because all transactions are equally recorded on the public legers and cannot be forged or lied about for fraud.
Cryptocurrency even with its volatile nature has managed to appeal to a large number of people and is sometimes referred to as the future of money. It can be a good idea to go for it if one wants to keep up with technological advancement of finance, as long as it is dealt with caution and a good understanding of what it entails. It might just be a goldmine waiting to be mined.