Since cryptocurrency is fast becoming a mainstream form of payment, you might want to know what it is so you don’t get left behind in the financial world. It may seem daunting to people who have never used cryptocurrency before, but once you understand the technicalities, it really is quite simple.
Here is the ultimate guide to cryptocurrencies for beginners:
What is Cryptocurrency?
You cannot live in the modern world and not know what cryptocurrency is. It started to gain popularity with the bitcoin boom and the rise of the markets, and it only got bigger every year. It is a form of currency that many large companies are beginning to introduce as a form of payment.
Digital-focused industries have adopted crypto-based transactions faster than others. For example, online casinos, where you can play crypto slot machines, have completely removed transaction fees for crypto deposits. This entices more online game lovers to enjoy games like Fury of Zeus by simply depositing funds in cryptocurrency. Moreover, with the presence of crypto bonuses, the whole industry is heading towards a decentralized future where people would prioritize digital currencies over their fiat counterparts for online services.
Cryptocurrency is a form of decentralized digital currency often referred to as “crypto”. It is crypto-based and not issued by a central authority like most other fiat currencies such as Pounds, Euros, and Dollars. Instead, cryptocurrency is mined, sold, and monitored through a peer-to-peer network.
When you want to understand what cryptocurrency is, you also need to have a basic understanding of blockchain. It is the digital ledger on which cryptocurrency is built and which records all crypto transactions. It was originally built as a base for Bitcoin in 2009, but it has started to evolve, and many companies are seeing how it can be used for other apps.
How Cryptocurrency Works
Blockchain provides cryptocurrency with a non-hackable record of transactions and who owns which coins at the time. This works to solve the problem that many other digital currencies have faced where people would make copies of their holdings. This is impossible with cryptocurrency, and therefore they are incredibly secure.
A unit of cryptocurrency, or coin, is created through a process called mining. Let’s take Bitcoin as an example. To mine Bitcoin, you must solve complex mathematical equations and puzzles to verify the authenticity of a transaction made on the blockchain. Because you are doing this to help other transactions, you are rewarded with your own Bitcoin. Most of the time, the mining process is relatively similar, but it may differ depending on the cryptocurrency you are mining.
Types of cryptocurrency
As we mentioned, many cryptocurrencies are created as a reward for work done on the blockchain of which they are a part. However, different forms of cryptocurrencies serve different purposes. These different coins also serve unique purposes, and some may be more worth investing in than others. Here are some of the most common types of cryptocurrency:
- Utility: These are the most common cryptocurrencies that perform functions on their blockchains
- Transactional: Bitcoin is an example of a transactional cryptocurrency, where you use them to pay for goods and services like online casinos
- Governance: These cryptocurrencies help people vote and perform other similar actions on a blockchain
- Platform: These types of cryptocurrencies support applications that have been designed to specifically use a blockchain
- Security tokens: you will find a security token when you want to represent your ownership on an asset
Benefits of Cryptocurrency
There is a reason why cryptocurrency is becoming such a popular payment method and investment, and it is because there is a wide range of benefits associated with it:
- There is no central authority or “middleman” when using cryptocurrency. This means that all your coins are in your hands. It takes away the power of central banks and prevents them from reducing the value of money.
- Cryptocurrencies have been seen as a good alternative for underserved communities that have been let down by the traditional financial system.
- Since cryptocurrencies are built on blockchain technology and use a decentralized processing systemthis makes all transactions and payments much more secure and less susceptible to hacking.
- You can grow your crypto holdings without having to invest your own money through a process called crypto staking. This can provide you with higher returns for less.
Disadvantages of cryptocurrency
Like most things, cryptocurrency also has its drawbacks. Here are some disadvantages associated with digital currency:
- Since cryptocurrency is still a relatively new payment method, many projects are untested. Many people are skeptical of things like bitcoin becoming a mainstream banking option, which makes it difficult for it to grow.
- There is high volatility associated with cryptocurrency investments, and this is because prices tend to change quickly. Some people may have made higher returns by buying at the right time, but others lost big when the markets crashed.
- Mining cryptocurrencies such as Bitcoin uses a large amount of energy, which has adverse effects on the environment. However, some cryptocurrencies use different registers that do not require as much energy.
David is a crypto enthusiast and personal finance expert. He has created numerous publications for different platforms. He loves exploring new things, and that’s how he discovered blockchain in the first place.