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Cryptocurrency has been the new buzzword in modern finance for a while now – and millions of people across the globe are invested in some form of cryptocurrency! Still, it remains a nebulous topic for some – it can be hard to find good information about cryptocurrency, and getting started using it can be a daunting task!
Don’t worry though – here’s a handy guide to the basics of cryptocurrency. If you don’t know anything about cryptocurrency – what it is, how it works, or how to use it – then this article is for you! You’ll go from knowing nothing, to being able to buy ethereum stock online with ease! Read on to find out more about cryptocurrency!
How does it work?
Unlike regular cash that you get from a bank, cryptocurrencies aren’t physical notes or coins that go into your wallet or purse. Instead, they exist solely on computers, and use the internet for every single transaction.
The money is still stored somewhere of course – in a digital wallet, which works much like your physical wallet, or indeed a bank account. Money goes in, money goes out – in this respect it’s much like physical, or fiat currency – the type that you’re used to..
A cryptocurrency works just like normal money – you can make transactions online using it, and you can buy and sell it using other currencies such as the US Dollar too!
The transactions are calculated, stored, and kept secure online using a technology called blockchain – read on to find out more about how blockchain works!
Blockchain is a technology that was first successfully implemented in one of the most well-known cryptocurrencies, Bitcoin. The technology has since been implemented and built on in other currencies too, such as Ethereum.
A blockchain is a record of transactions that’s kept and maintained on a network of computers – a public digital ledger. If you make a transaction using your currency, a record of it is instantly transmitted to thousands of computers called “nodes” over the internet. Each transaction is entered into a “block” of information, and each block, when large enough, is added after the last in the list, forming a “chain”.
These chains are publicly readable, so that anyone who has made a transaction can see and verify that the transaction of cryptocurrency actually happened.
Each block contains a cryptographic hash of the previous block – which means the content of each block is actually dependent on the blocks that were entered before it. It’s the computation of these hashes where the nodes come in – it takes processor power to do this, and nodes all across the globe are using their processor power to generate and verify these hashes.
Once they’re done, the transaction has been successfully verified – and the node that successfully solved the complex processing task of calculating these hashes is rewarded with some amount of cryptocurrency! This is called “mining”!
Is there just one cryptocurrency?
No, there are actually many different cryptocurrencies – far too many to list! Some of the most well known are Ethereum, Bitcoin, Dogecoin, Litecoin, Solana, Binance…..and there are thousands more!
Advantages of cryptocurrency
There are many advantages to using cryptocurrencies – read on to find out more!
They’re actually easy to use, despite seeming confusing at first. You can usually use either your computer or your smartphone to make transactions with cryptocurrencies. As long as you maintain access to your digital wallet, and don’t divulge or lose your authentication, your cryptocurrency is safe, secure, and available for you to use whenever you want.
If you make a transaction using a cryptocurrency, the history of the cryptocurrency is tracked in a ledger that’s available online – which means that you can verify that the transaction took place as intended, with the correct cryptocurrency token, and the correct amount.
This makes it easy to keep money secure, and to ensure that any transactions have a verifiable record!
Disadvantages of cryptocurrency
There are disadvantages and things to be aware of when it comes to cryptocurrencies. There are very few regulations currently when it comes to cryptocurrencies, and markets can be volatile – which means that it’s possible for your held cryptocurrency to lose value.
If you lose access to your digital wallet, then that could be it for your money. The wallet could be on your computer, but if you can’t access it, you essentially don’t have it – and it’s lost forever. That could be all of your money, gone – unrecoverable! Some early investors in cryptocurrencies have lost millions of US Dollars worth due to losing access to their wallet! Therefore, it is of extreme importance that you never lose access to yours – if you do, the consequences could be disastrous.
Hopefully, this article has helped you learn a bit more about cryptocurrency!