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Home » What is Cryptocurrency and how does it work: Everything you need to know

What is Cryptocurrency and how does it work: Everything you need to know

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So What is Cryptocurrency meaning? When we buy or sell things the payment is usually processed by a bank or credit card company. But the problem is companies often take a cut of the transaction. We have to trust these companies to protect their sensitive data from hackers. Most international payments take a long time and are expensive to solve these problems.

We could use a special currency that is secure and based on the science of cryptography which is a way of protecting information using mathematics this special type of currency is called a cryptocurrency.

What is Cryptocurrency?

It is a digital or virtual asset that uses cryptography to secure its transactions and control the creation of new units. Cryptocurrency is decentralized, meaning it is not subject to government or financial institution control.

Cryptocurrency is often traded on decentralized exchanges that use so-called blockchain technology to track transactions. Some popular Exchanges are Binance and Coinbase.

How many types of cryptocurrency are there?

Types of Cryptocurrency

how many types of cryptocurrency are there?

There are many different types of Cryptocurrency, each with its own unique features. Here is a brief overview of the most popular types of cryptocurrency coins.

  • Bitcoin

Bitcoin(BTC) is the most well-known cryptocurrency and the first and most popular type of cryptocurrency. When did cryptocurrency start? Satoshi Nakamoto created crypto bitcoin in 2009. Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain. Bitcoin is unique in that there are a finite number of them: 21 million.

BTC has been controversial in the past, as some see it as a digital haven for criminals and money launderers.

  • Ethereum

Ethereum is a decentralized platform that runs smart contracts applications. It runs exactly as programmed without any possibility of fraud or third-party interference. This means that you can write a contract without any possibility of someone else modifying or tampering with it after you have uploaded it to the blockchain. This is great for applications that need to be tamper-proof or applications that need to be trustless.

How cryptocurrency mining works?

Cryptocurrency Mining

To see how this works, let’s look at how you’d buy something with cryptocurrency. Say that Alice wants to buy a bike from Dan using BTC, her cryptocurrency of choice. Alice begins by logging into her BTC wallet with a private key. The private key is a unique combination of letters and numbers. With a traditional financial transaction, the exchanges get sent to banks on each side who record the money being subtracted from one account and added to another.

But remember, in this scenario, there are no banks or middlemen. Instead, Alice’s transaction is shared with everyone in the BTC network. These networked computers add Alice’s transaction to a shared list of recent transactions, known as a block. Every 10 minutes, the newest block of transactions is added on, or chained, to all the previous blocks. That’s how you get a blockchain.

To ensure that each block of transactions on the chain is verified, a subset of Bitcoin’s network joins a race to solve a difficult math puzzle. And if they solve it first, their record of the block of transactions becomes the official record. They’re rewarded with Bitcoins of their own, and the network gets a new block on the chain. This entire process is known as mining.

But instead of chipping away at the rock, you’re solving complex puzzles. The puzzle becomes harder when more computers join in to ensure the competition stays fair and evenly timed. The Bitcoin protocol says mining will continue until there are 21 million Bitcoins in existence. That’s set to happen around 2140. If Bitcoin lasts that long.

Is Crypto safe

Cryptocurrency Safety

Cryptocurrency is safe or not? Ultimately depends on the context for starters not all cryptocurrencies are created equal.  Some cryptocurrencies are built to prioritize speed over security and usually the consequences of that play out quite quickly luckily for us. There are always hackers somewhere looking to crack cryptocurrency networks. So they can trick them into creating new coins or tokens out of thin air to sell for a fancy profit.

Now, this might sound scary but it’s no different from what happens to banks and corporations on a daily basis. When hackers succeed the affected company usually beefs up its cyber security the same goes for cryptocurrencies. Most cryptos that have been around for years are robustly battle-tested as a  consequence of always being under attack by bad hackers.

Cryptocurrency Price

Cryptocurrency Price

Cryptocurrency price prediction and Cryptocurrency price chart

Cryptocurrencies are valuable because of what they do obviously this value changes depending on which cryptocurrency. for example BTC coin has an economic profile similar to gold. It has a maximum supply and only a small amount of BTC is created each day.

That amount is cut in half every four years assuming demand for BTC stays the same over time this would lead to a doubling of bitcoin’s price every four. One important thing to note is that most other cryptocurrencies are highly correlated to bitcoin meaning their prices are reliant on what BTC does.

The European central bank even issued a bond on the Ethereum blockchain. Now the reason why the value of BTC  eth and every other cryptocurrency fluctuates so much each day. Basically, nobody knows what these technologies are actually worth the prices of stocks and gold, and even regular currencies fluctuate every day for the same reason. TradingView is by far the most popular cryptocurrency graph.

Cryptocurrencies are much more volatile because what they do is revolutionary cryptocurrency networks make it possible to lend save and borrow without an identity credit score. Bank makes it possible to do business directly with other people without a  middleman taking a cut meaning service giants like uber and tech giants like Facebook.

Conclusion

The question is whether Cryptocurrencies can be considered money. If not what is their commercial value for them. if we go back to the function and characteristics of money that we defined at the beginning of the course cryptocurrencies presently still do not fulfill the requirements. They also don’t fulfill the requirement of being stable according to the economic definition of money. It needs to be stable in order to provide a store of value.

however, as the fluctuations of BTC and other cryptos have demonstrated over the past few years the price of these assets has been far from stable. Lastly and most importantly the speed and efficiency that existing digital payment systems like visas offer cannot yet be matched by cryptocurrencies. So having said all that what do you think about cryptocurrencies are they a substitute for money. Let me know in the comment below.

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