Currently, cryptocurrencies have received a lot of scrutiny through various names: virtual currencies, crypto, coin, token, etc. If you’ve decided to invest in the cryptocurrency market, as with any other investment, it’s essential to do your research before you hand over any money. In this article, GIG will share information about “What is cryptocurrency? Here’s what you need to know about cryptocurrency.”
Read more: What is Blockchain? How Blockchain works
What is cryptocurrency?
A cryptocurrency is a form of payment that can be exchanged online for goods and services. Many companies have issued their currencies, often called tokens, and these can be traded specifically for the goods or services that the company provides.
Cryptocurrencies work using a technology called a blockchain. Blockchain is a decentralized technology spread across many computers that manage and record transactions. Part of the appeal of this technology is its security.
How many cryptocurrencies are there?
More than 10,000 different cryptocurrencies are traded publicly, according to CoinMarketCap.com, a market research website. And cryptocurrencies continue to increase, raising money through initial coin offerings, or ICOs. The total value of all cryptocurrencies on Aug. 18, 2021, was more than $1.9 trillion — down from the April high of $2.2 trillion, according to CoinMarketCap. The total value of all bitcoins, the most popular digital currency, was pegged at about $849 billion, regaining some ground from recent price lows. Still, the market value of bitcoin is down from April’s high of $1.2 trillion.
Why are cryptocurrencies so popular?
Cryptocurrencies appeal to their supporters for a variety of reasons. Here are some of the most popular:
- Investors see cryptocurrencies as the currency of the future and are racing to buy them now, presumably before they become more valuable.
- The fact that cryptocurrency removes central banks from managing the money supply since, over time, these banks tend to reduce the value of money via inflation
- The technology behind cryptocurrencies – the blockchain – is a decentralized processing and recording system and can be more secure than traditional payment systems
- In the future, cryptocurrencies are going to go up in value and have no interest in the currencies’ long-term acceptance as a way to move money
How is crypto investing different from traditional investing?
As cryptocurrency investing gains popularity, more people are apt to choose the more convenient option. Therefore, many who might otherwise invest in a more traditional way have turned to cryptocurrencies instead.
However, because the value of cryptocurrencies isn’t backed by anything, investments can be highly unpredictable. That’s one of the reasons why these currencies cannot take the place of a local bank. While they provide an investment opportunity, they might not offer stability like your cash. Furthermore, this currency may not secure mortgages, loans, or other services because of its fluctuations. This is why continuing to work with your local bank is essential, even if cryptocurrency strikes your interest.
How to Get Cryptocurrency
Before you can get cryptocurrency, you need a “digital wallet.” A wallet allows a user to store, send, and receive cryptocurrency. These wallets can be on desktop computers, smartphones, online websites, and even on paper; it depends on users’ preferences and needs.
After setting up your digital wallet, there are several different ways to get cryptocurrencies:
- Airdrop: Someone can give you coins; it’s like being gifted cash, but instead of receiving physical coins or bills, the cryptocurrency is sent directly to your digital wallet. This is one of the few free ways to get cryptocurrency.
- Purchasing: Most people buy or exchange fiat currency for cryptocurrencies, such as the dollar or yen. Online exchanges allow users to purchase coins with their credit or debit cards.
- Receiving Payment: Another way to obtain coins is to accept cryptocurrency as a form of payment. Anyone can perform a service or offer a product and get cryptocurrency in return. However, cryptocurrency price swings can be volatile, making this a risky option for small business owners. In addition, the IRS has specific tax rules for people who receive cryptocurrency as a form of income.
- Mining Coins: Tech-savvy users can “mine” coins by using their computing power to verify blocks. Typically, the first user to solve a block’s algorithm is rewarded with coins. Mining coins is highly competitive and not a practical option for most people. Miners often spend thousands of dollars upgrading their computers to boost their processing power for a better chance to solve the algorithm first.
Advantages & disadvantages of cryptocurrency
Advantages of cryptocurrency
When you are doing business or dealing with brokers or legal representatives, there are a lot of transaction fees that you must pay for every transaction. When you use cryptocurrency, it removes the need for the middle man. The transaction would take place one to one on the secure network. The transactions would be transparent, and it becomes easier for you to establish the audit trails.
The cryptocurrencies can be used to transfer the ownership of assets on one name to another name by paying the seller through coin or token. It all happens in the blockchain ecosystem. It facilitates you to carry out the transactions safely and securely. The cryptocurrencies would be designed to add third-party approvals and can be completed on a future date. If you are the person who holds the cryptocurrency and has authority on the account, you can reduce the time and expenses involved in the transaction of assets.
Using cryptocurrency is that every transaction you carry out with the recipient would be unique. You can get into terms of negotiation in every deal. You can only share the information that you want to disclose to the recipient. The financial history will have ample privacy and protect your identity. When making transactions using the wallet, make sure to check the coin trader’s updated version.
Low transaction fee
One of the effective uses of cryptocurrencies is to send money across borders. With the help of cryptocurrency, the transaction fees paid by a user are reduced to a negligible or zero amount. It does so by eliminating the need for third parties to verify a transaction. This removes the need to pay any extra transaction fees.
Fast transfer funds
Cryptocurrencies have always kept themselves as an optimal solution for transactions. Transactions, whether international or domestic in cryptocurrencies, are lightning-fast. This is because the verification requires very little time to process as there are very few barriers to cross.
The best part of cryptocurrency is that you will be the sole owner of private and public encryption keys. It becomes easier for you to identify the cryptocurrency network.
Secure and private
Privacy and security have always been major concerns for cryptocurrencies. The blockchain ledger is based on different mathematical puzzles, which are hard to decode. This makes a cryptocurrency more secure than ordinary electronic transactions. For better security and privacy, cryptocurrencies use pseudonyms that are unconnected to any user, account, or stored data that could be linked to a profile.
Protection from inflation
Inflation has caused many currencies to get their value declined with time. Almost every cryptocurrency, at the time of its launch, is released with a fixed amount. So, as the demand increases, its value will increase, keeping up with the market and preventing inflation in the long run.
Disadvantages of Cryptocurrency
Can be used for illegal transactions
Since the privacy and security of cryptocurrency transactions are high, it’s hard for the government to track down any user by their wallet address or keep tabs on their data. Some also use cryptocurrencies to convert their illicitly obtained money through a clean intermediary to hide its source.
Data losses can cause financial losses.
If any user loses the private key to their wallet, there’s no getting it back. The wallet will remain locked away along with the number of coins inside it. This will result in the financial loss of the user.
Decentralized but still operated by some organization
Cryptocurrencies are known for their feature of being decentralized. But, the flow and amount of some currencies in the market are still controlled by their creators and some organizations. These holders can manipulate the coin for considerable swings in its price.
Susceptible to hacks
Although cryptocurrencies are very secure, exchanges are not that secure. Most exchanges store the wallet data of users to operate their user ID properly. This data can be stolen by hackers, giving them access to a lot of accounts.
No refund or cancellation policy
If there is a dispute between concerned parties, or if someone mistakenly sends funds to a wrong wallet address, the sender cannot retrieve the coin. Many people can use this to cheat others out of their money. Since there are no refunds, one can easily be created for a transaction whose product or services they never received.
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