Cryptocurrencies are digital currencies that don’t physically exist. All trading, exchange, possession, and payment is virtual – via cryptography. It’s a coded system that controls transactions, verifies them, and controls the influence of new units. Different cryptocurrency units operate on different cryptographic systems.
Although it isn’t possible to own this currency in physical form, it has value and can be exchanged for traditional money or goods. Every day, an increasing number of companies are starting to accept cryptocurrency as a valid currency for payment.
What Are the Benefits of Cryptocurrencies?
- They provide participants with complete anonymity because you don’t leave any personal information to access the network and become the owner of the cryptocurrency.
- What sets cryptocurrencies apart is that they are generated by programs and aren’t under the control of any government or central bank. No one has absolute control over the system.
- Commissions are cheaper than with traditional money transfer methods.
- Due to the encryption system, cryptocurrencies are protected from embezzlement, photocopying, and duplication of transactions.
- They are transparent and everyone can see the transactions that are taking place. Of course, users are under codes called addresses and no one can find out who’s hiding behind the transaction.
Flaws of Cryptocurrencies
- Precisely because the system is new, many countries don’t recognize digital currencies and don’t legally regulate payment systems with them.
- The link between the cryptocurrency you own is a digital wallet with an address and a private key. If you lose the key you have no connection to your money.
- Many proponents against cryptocurrencies condemn the fact that there’s no information about the owners of the addresses they trade. According to them, this creates an ideal place for trading for those who don’t want to be directly connected with invested funds such as criminal organizations.
Types of Participants
Cryptocurrencies are different, but the mere functioning of the crypto network is the same. There are two types of participants: those who own a cryptocurrency and make transactions for money – passive and those who, in addition, actively participate in earning additional cryptocurrency.
These active participants are called miners. They compete to be the first to enter the transaction that took place. Of course, this isn’t easy. Through special computer programs (very expensive), they discover which part is missing in the code, which will then fit into the financial book of all previous records – blockchain. The name itself says that these are individual transactions that are connected in a chain.
Miners receive a commission from those who trade, but also a reward that’s prescribed in advance by the program for the solved problem. Exactly when the system rewards miners, it gradually adds a new cryptocurrency to the maximum specified amount that’s predetermined when creating the cryptocurrency.
The first versions of cryptocurrencies attracted a large number of users, there’s a large volume of the trade so that cryptocurrency is added quickly, while with young virtual money it goes slower.
How to Become the Owner of a Cryptocurrency?
We mentioned that the connection to the entire network is a digital wallet that contains your tag – address and security key. This is what it takes to own and trade digital money.
There are several ways to create digital wallets and the forms in which they exist:
- Paper wallet
- Digital wallet created by a smartphone app
- A digital wallet created by a server
- Digital wallet in the form of a USB device
It’s very important to choose the right digital wallet because it contains a private key which is the only connection to your cryptocurrency.
How Does the Cryptocurrency Trading Process Work?
There are several ways to buy and sell digital money. The most universal ways that suit most cryptocurrencies are:
- ATMs for cryptocurrencies
- Exchange offices
- Direct sale by meeting face to face
Bitcoin – The Most Famous Type of Cryptocurrency
The first form of cryptocurrency that survived was Bitcoin (BTC). It was created after the 2007 – 2008 financial crisis, and maybe that’s why it isn’t such a coincidence that it remained in circulation. It was created by an individual or group of people named Satoshi Nakamoto in 2009 when people lost confidence in mutual funds, lost a lot of money, and needed a currency that would be more stable.
Bitcoin is the first cryptocurrency that’s decentralized, so no individual has absolute power and thus there’s no manipulation of transactions or the number of money in circulation. There’s no central bank to regulate the exchange rate through monetary and fiscal policy. Supply and demand are the only ones that form it.
This cryptocurrency is increasingly recognized in the payment system. Apple, Microsoft, hotel chains, the real estate market…allow paying with BTC. Now it’s easier to accept other cryptocurrencies (Ethereum, Ripple, BitcoinCash, Neo, Litecoin, Dash…). Today’s Bitcoin price makes it the most valuable cryptocurrency on the market.