Despite of the fact that cryptocurrency is the money of the future, it’s surprising how much people don’t know about it yet. If you are new to this concept, here’s a guide for you to understand what cryptocurrency is, what are the benefits of using it over traditional money and what is cryptocurrency mining. We also talk about the most popular cryptocurrency, bitcoin. So stick around to learn in-depth about cryptocurrency!
What is Cryptocurrency?
Starting with the basics, let’s define cryptocurrency first. In simple words, a cryptocurrency is a form of virtual or digital currency that is secured by the technology of cryptography. Cryptography is a security technique that involves coding and decoding of transmitted and stored data so that only sending and receiving parties are able to intercept it. So you can perceive cryptocurrency as an online currency exchange and storage system that’s secure and anonymous. Bitcoin, Ripple, Litecoin, Dogecoin and Coinye are some examples of cryptocurrencies.
What is Cryptocurrency Mining?
Cryptocurrency works on blockchain technology. A blockchain is like the master ledger or record keeper that keeps track of every transacted and owned unit of the cryptocurrency. The identical copies of the blockchain document is available across all the nodes of the software network, made up of decentralized server clusters, of the cryptocurrency. Each of these nodes is run by an individual or a group of people who are known as miners. These miners have powerful software and hardware capabilities at their disposal. The job of the miners is to tally the cryptocurrency transactions, update the blockchain document with the new transactions taking place and ensure the authenticity and security of the transactions.
How does this happen? All the cryptocurrency transactions that are taking place within a set period of time are added into a list called a block. The job of the miners would be to confirm this block of transactions and add it to the master shared ledger document Blockchain. When a particular block of transactions is complete, the block is processed by the miners. Using information from the block, a complex mathematical equation is solved to generate a code of numbers and letters, called hash. The block and the newly produced hash are stored at the end of the Blockchain document for that given point of time. Also, with each block, new units of the cryptocurrency are created or issued.
Cryptocurrency mining is a carefully controlled process that ensures that the value of the existing cryptocurrency units does not depreciate because of variations in demand and supply.
Top 5 Benefits of Using Cryptocurrencies
Cryptocurrency is not controlled by any one centralized authority, as is the case with all physical currencies. It is a peer-to-peer cash system that is completely decentralized. It is free from the control of laws and regulations of any jurisdiction. This puts much of the power of using cryptocurrency in the hands of currency holders.
Tired of giving out your personal information everywhere, like during credit card payments? In cryptocurrency transactions, you don’t have to worry about divulging your personal details at any point of the transaction. You can keep your identity completely anonymous throughout the transaction.
- High Security
Cryptocurrencies and their transactions are encrypted, which greatly reduces your vulnerability to security threats like fraud and currency theft. Everything takes place digitally under the security of cryptography. Chances of counterfeit are nearly negligible when it comes to cryptocurrencies, which is what makes them a great option for doing payments and other financial transactions.
- Universal Nature
Exchanging physical currencies across countries can be a costly affair because of charges like exchange rates involved. On the other hand, with cryptocurrencies, there are no costs involved like exchange rates, interest rates or any other specific charges of a given location. Cryptocurrencies can freely move around the globe with no barriers.
- Low Costs
Usually, you don’t have to pay any fees for cryptocurrency transactions and exchanges. However, it’s worthwhile to note that you’re likely to pay fees for engaging a third-party service for storing and maintaining the digital wallet for your cryptocurrency.
What’s the Buzz About Bitcoin?
Bitcoin is the first and to date most popular cryptocurrency, that was introduced in 2009 by the mysterious person or group of persons under the identity Satoshi Nakamoto. This digital asset is open-source software, it’s not owned by any individual, corporate organization or government. Bitcoin miners are the ones who are responsible for enforcing the reliability of the whole bitcoin network. For their services rendered, bitcoin miners are given rewards in the form of newly issued bitcoins and transaction fees which is also paid in bitcoins.
Apart from mining, there are other ways too to acquire bitcoins. There are marketplaces known as bitcoin exchanges where you may sell or buy bitcoins using various currencies. People can transfer bitcoins to each other, just like how they would transfer digital cash. Bitcoins can be easily stored in digital wallet, a type of digital bank account that can be used by the user to send bitcoins, receive bitcoins, save bitcoins, make payments for goods or services using bitcoins, etc. This wallet can be either on the user’s computer or in the cloud.