What is Crypto Currency?

Introduction

Cryptocurrency is one of the newest things that has happened in the finance world. It is one of the hottest topics among young investors. Cryptocurrency can be used as an investment as well as can be used to buy certain things at limited places.

Cryptocurrency is very volatile hence it is quite a risky investment. At the same time, it has a high potential to give you high returns in the long run. In this article, we will understand in detail about the cryptocurrency.

Meaning of Crypto Currency

Cryptocurrency is one kind of digital currency which is based on the system of cryptography. It doesn’t rely on any banks or third parties to verify transactions. It uses a decentralised system to validate transactions on a publicly traded ledger called blockchain.

Blockchain is a shared public ledger which has all the transactions that have ever taken place within the network. Hence everyone on the network can see all the transactions. This reduces the chances of fraud as well as nullifies the chances of double spending.

How does the Cryptocurrency work?

Cryptocurrency works on the public ledger system called blockchain. All transactions that take place related to crypto are recorded on the blockchain. Units of cryptocurrency are created through the process of mining. This process makes use of computer power to solve complicated mathematical problems which will generate coins.

Only miners have the right to confirm the transaction. They spread it to the node and get updated in the ledger accordingly. After the confirmation of the transaction by the miner it becomes irreversible and non-modifiable.

Some of the Popular Examples of Cryptocurrencies

At present, there are thousands of cryptocurrencies in the market. But there are few of them leading the crypto market.

1. Bitcoin

Bitcoin is the first cryptocurrency that came into existence in the year 2009 as an open-source platform. The currency was developed by Satoshi Nakamoto who is believed to be the pseudonym for an individual or group of people.

2. Ethereum

Ethereum was developed in the year 2015 and is a blockchain platform with its own cryptocurrency named Ether or Ethereum. It is the most popular cryptocurrency after Bitcoin.

3. Lite Coin

Litecoin was created as an alternative to Bitcoin. It is also an open-source network where digital currency transaction occurs. It allows faster payments as compared to Bitcoin.

4. Ripple

Ripple is a distributed ledger system which came into existence in the year 2012. It can be used to track different types of transactions, even those other than cryptocurrency.

How to buy cryptocurrency?

If you want to buy cryptocurrency then you can do that through a broker or crypto exchange. To purchase the cryptocurrency, you will need to open the account. After that deposit the funds and then you can place the order. You can buy the cryptocurrency at the current market price like stock markets.

After buying the cryptocurrency coins you will need to transfer them to a digital wallet. You can also make use of third-party services like Coinbase to store the coins. There are several ETFs also available in the market that give exposure to crypto assets. For this investor don’t even need to have their own wallets.

Advantages of Crypto Currency

The advantages of cryptocurrency are as under: –

1. Protection Against Inflation

Cryptocurrency can be a good hedging tool against inflation. The amount of any coin is specified in a source code. With growing demand, the value will keep rising. This will in the long term prevent inflation.

2. Decentralised System

Cryptocurrency is based on the decentralised system. This means that there is no need to rely on any intermediary for transactions or authorisation. The entire ecosystem runs on blockchain technology which is a decentralised public ledger

3. More Secured Transactions

The blockchain technology is used to mine the cryptocurrency. This is built on mathematical problems that are difficult to decode. Hence cryptocurrency transactions are more secure than standardised electronic transactions.

4. Easy Transfer

One of the important benefits of cryptocurrency is easy transfer. Cryptocurrency transactions whether international or domestic are very fast. As there are minimum barriers the verification takes place very fast.

Disadvantages of Cryptocurrency

Some of the disadvantages of cryptocurrency are as under: –

1. Prone to Illegal Activities

The anonymity factor in cryptocurrency transactions makes it easy to be part of illegal transactions like money laundering, tax evasion etc.

2. Less Acceptance

Cryptocurrency acceptance is very low at the global level. It is accepted at very less places.

3. Prone to Hacks

Cryptocurrencies are very secure but the crypto-exchanges are not. They save user wallet info to operate their used IDs. Hackers can easily steal this kind of information and misuse it.

4. No Refunds or Cancellations

If some transfer takes place to the wrong address, then the sender cannot retrieve it. Some people can use this as an opportunity to defraud others’ money.

What is the Use of Cryptocurrency?

The wider-scale use of cryptocurrency is still not prevalent. But still, there are certain purchases that you can make through cryptocurrency.

1. Technology and E-commerce Sites

Some companies sell their tech products on websites where crypto payment is accepted. Newegg.com, Microsoft, and AT&T are some of the sites that accept cryptocurrency payments.

2. Luxury Goods

Some retailers accept cryptocurrency payments. For example, Online Luxury retailer Bitdials provides Rolex, Patek Philippe and other top watches in exchange for bitcoin payments.

3. Cars

Some car dealers in some countries have also started accepting cryptocurrency as payment for car purchases.

4. Insurance

Swiss Insurer AXA started accepting Bitcoin as a mode of payment in the year 2021 for all insurance except life insurance. Premier Shield Insurance which sells home and auto insurance policies in the US also accepts bitcoin premium payments.

Conclusion

Cryptocurrency is the new age digital currency very popular among youth. It is mainly used for investment purposes. They are highly volatile and have the potential to give higher returns in the long run. Cryptocurrency is based on a decentralised system hence there is no involvement of any central authority. It makes the transactions faster and more secure.