Cryptocurrency emerged in the early 1990s but came into the mainstream consciousness around 2009. Up until this point, there was little regulation for this form of currency, allowing it to grow in popularity without much interference.
Some see cryptocurrency as a potential solution to the economic turmoil caused by the coronavirus pandemic. Today, investors are highly attracted to cryptocurrency because it is not regulated by banks or governments, which means that you're only changing risk if you invest in it. Above all, it is decentralized, meaning that there's no centralized authority for transactions.
Let's dive deeper and understand --- what a cryptocurrency is, how it works, is it safe to use crypto, who regulates it if not the government, why do you need to invest in this digital currency? And a lot more.
Cryptocurrency: An Internet-Based Digital Cash
Cryptocurrencies are digital currencies that use encryption to control the creation and tracking of transactions. It is typically mined or traded on a digital exchange and can be held in a digital wallet on your computer or on a dedicated hardware device called a crypto wallet.
Cryptocurrency is not backed or regulated by any government, so prices vary significantly. Cryptocurrency wallets can be obtained from cryptocurrency exchanges and online wallet providers. Today, the most popular cryptocurrencies to buy include Bitcoin, Ethereum, Litecoin, Monero, XRP, and Solano.
How Does Cryptocurrency Work?
Cryptocurrencies are not tied to any country's economy but are directly linked to trading and investment markets. The cryptocurrency world is still very mysterious, with many people wondering how it works.
Cryptocurrency works through the process of mining, which is a system that allows transactions to be verified and then added to public ledgers. This technology uses cryptography (a complex mathematical algorithm) to secure financial transactions between people exchanging goods or services (you can think of it like digital signatures).
It also adds other data types into the ledger, such as timestamps and the unique digital signature of the person exchanging currency. This is a way to create a kind of decentralized currency with no controlling authority because there's no physical currency in use.
Why Are Cryptocurrencies So Popular?
Cryptocurrencies such as Bitcoin and Ethereum have been all the rage recently, with their values skyrocketing. One of the most popular questions on many people's minds is why these cryptocurrencies are so popular?
However, the popularity of cryptocurrencies is fueled by many factors. The most common is that they are decentralized, can be accessed from anywhere globally, are not regulated by any government body, and offer anonymity.
From the user's perspective, investing in cryptocurrencies is as easy as getting their hands on the currency itself. With that being said, there is a huge potential for cryptocurrency to grow in the future significantly.
What Are the Most Popular Types of Cryptocurrency?
There are nearly 3,000 types of cryptocurrencies. Yes, you read it right. However, it is common for people to be most interested in the top five cryptocurrency types. These include Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), Litecoin (LTC), and Bitcoin Cash (BCH). People often trade these currencies more than others due to their popularity and/or a high volume of trades. Let's get a brief overview of each.
1. Bitcoin (BTC) - Bitcoin, popularly referred to as BTC, is the world's most valued cryptocurrency. It was created back in 2009 by an anonymous user with the pseudonym Satoshi Nakamoto. Today, it is often regarded as one of the rarest forms of currency on the internet. Though Bitcoin does not have a physical form, it can be converted into other types of digital currencies through various exchanges.
2. Ethereum (ETH) - It is the second most popular cryptocurrency in the world, behind Bitcoin. It's one of many types of cryptocurrencies that are decentralized digital currencies that can be used as an investment vehicle or medium of exchange with no centralized controlling organization. The consensus mechanism used to secure the network is called Proof of Work.
3. Ripple (XRP) - It is the world's third-largest cryptocurrency, but Ripple can be used to process transactions in any currency. It takes a fraction of a second to send money around the globe. Ripple is different from Bitcoin and Litecoin in that it works in a decentralized manner. The currency is built on blockchain technology and uses distributed ledgers to record transactions.
4. Litecoin (LTC) - It is one of the most popular types of cryptocurrencies and is often considered a "sister" or "brother" to Bitcoin. It was released in 2011 and is used as a quicker and more cost-effective way to cash out cryptocurrency than Bitcoin. It can also be used to purchase items online and acts as an alternative to using fiat currency.
5. Bitcoin Cash (BCH) - It is an altcoin or another form of bitcoin. It was created in August 2017 after the original Bitcoin blockchain forked. The most popular type of cryptocurrencies is called altcoins, which include Litecoin (LTC), Ethereum (ETH), and Ripple (XRP). Oftentimes, these coins are made to improve upon or change up some feature that an original coin provides.
Are Cryptocurrencies Safe to Use?
Cryptocurrencies can be very confusing for many people. The way to the future may seem so unclear, but fortunately, it is not as risky as it looks.
Some of the most common risks that come with cryptocurrencies are hacks and thefts, lack of government regulation and oversight, price volatility, and high prices. These risks might become evident if you hold your cryptocurrencies on an online platform or if you buy them from an unlicensed seller.
However, cryptocurrency transactions are irreversible, making them an ideal way to protect against fraud. Having said that, bitcoin and crypto wallets are good examples of legal and safe platforms where you can safely store cryptocurrencies and access them whenever needed. To answer this question in short — yes, cryptocurrencies are safe to use only if you're investing in the right cryptocurrency following the right way.
Note - Read our guide on “how to invest safely in cryptocurrency” to have a clearer understanding of this.
Are Cryptocurrencies Legal?
Cryptocurrencies are a relatively new form of currency that is not backed by a country or government. In recent years, the widespread use of cryptocurrencies has grown exponentially as more people buy into the idea that they could be a key form of digital gold.
However, due to their unregulated and decentralized nature, many countries and governments have taken a cautious approach to cryptocurrencies and their legal standing.
The same goes for the United States, where no single nationwide policy on cryptocurrencies exists. This has led to a confusing and oftentimes misleading patchwork of state-by-state regulations.
Who Regulates Cryptocurrency?
There are regulations surrounding cryptocurrencies meant to protect consumers, which is a great idea because cryptocurrencies are not backed by any tangible assets. Cryptocurrencies are regulated on a country-by-country basis, with some countries cracking down more on unregulated currencies than others.
However, even in countries where cryptocurrency is legal, it is still very much illegal to purchase cryptocurrencies with fiat currency, and the same is true in reverse. This means that the only way to buy cryptocurrencies is with cryptocurrencies like Bitcoin.
Other types of assets like gold or silver are also very much restricted to cryptocurrencies. For that reason, it is in the consumer's best interest to learn how to buy cryptocurrencies because it is the only way to get in on the action.
Should You Invest in Cryptocurrency? If Yes, Why?
Cryptocurrencies are a new form of currency that has become popular in recent years. These currencies are considered to be theoretically immune to inflation. As such, they are often marketed as an investment opportunity.
However, there are also myriad risks inherent when investing in this digital currency- anything from hacking attacks to changes in government regulation. As such, it is important to understand the risks before making any investments in cryptocurrency.
Regardless of the price, it is vital to keep tabs on the traders' actions and check if they are violating any of the regulations.
Why Should You Invest in Cryptocurrency?
In the digital age, people are looking for a way to generate currency without going through a bank or other middleman. Cryptocurrency, a digital currency secured by cryptography, has become a popular way to do so. It eliminates the need for a third-party and the need for trust, making it perfect for use as an alternative currency.
Top 5 Reasons to Invest in Cryptocurrency:
- It's decentralized
- It's faster
- It has minimal fees
- It's highly flexible
- Doesn't involve any third-party
- It offers optimum security
The Future of Cryptocurrency: Concluding Thoughts
Cryptocurrencies are an emerging technology that is changing the way people see, save, and spend money. This new form of currency relies on a decentralized peer-to-peer network to process transactions without a middle man.
After only a few years in existence, they have become a breakthrough in how we think about currency in the future. This makes it worth exploring what its potential might be.
Cryptocurrencies are a digital representation of value, not backed by any country or government but by math through encryption. That being said, the future of cryptocurrencies can be summed up as exciting and unpredictable.