What is Cryptocurrency & How Cryptocurrency Works For Beginners

What is Cryptocurrency?

In today’s world, there is a high probability that you must have heard about cryptocurrency. Let’s discuss what it is. 

It is a digital currency that works as an actual currency to buy goods and services, but the difference is that it uses an online ledger for a secure online transaction. 

Many companies have now issued their currencies; these are known as tokens in this world. The difference between a coin and a token is that cryptocurrencies have their blockchain, whereas tokens are built on existing blockchains.

You can trade cryptocurrency for goods and services, but to buy it, you need real currency at first. They require blockchain technology to work, a decentralized technology that records transactions and is spread across many computers. 

Blockchain technology is appreciated and widely used because of its security, which was not seen some time ago. 

What is a Blockchain?

This terminology is used above, so for a more precise understanding, you should know that your crypto transactions are recorded in a block and linked like a chain with your previous transactions related to cryptocurrency. 

In simple words, you can say that it is a ledger of your digital currency where it keeps track of every transaction done by you. 

Proof of Work Vs. Proof of Stake

Historically, proof of Work was introduced to verify the cryptocurrency without the help of any third-party interference. It is a surety of valid transactions, and no one is trying to mess with it like spending the same fund twice. 

If you dive into the technicality, you will find that Proof of Work is based on advanced maths, also known as cryptography. It is a complex solution; the only way to solve it is by a potent computer, and the equation changes every time. 

Once the equation is solved, it is verified by the member. And miners get rewarded for solving an equation. Power consumption is very high as it uses the computer to solve equations.

On the other hand, proof of stake offers an equal and fairer mining system that relies somewhat less on electricity.

Proof of stake (PoS) tries to overcome the electricity problem by connecting mining power to the number of coins a miner owns. Instead of wasting energy solving PoW problems, a PoS miner is allowed to mine a percentage of transactions according to their ownership share.

 A miner who owns 10% of the coins available, for example, can theoretically only mine 10% of the blocks. Due to its scalable transactions, many popular cryptocurrencies (including Ethereum) are shifting from proof of work to proof of stake. 

Why are Cryptocurrencies so Popular

There was a time when people used to spend thousands of bitcoin (a popular form of cryptocurrency) to get a McDonald’s sandwich. 

They have become so valuable that people can buy Ferrari with 2-3 coins. One of the reasons for its popularity is that its value is increasing with time faster than conventional methods like real estate, gold, or stock. 

How Many Types of Cryptocurrencies Are There?

There are more than 9000 different types of cryptocurrencies available. The combined value of all these types is around $2 trillion. However, the value of each currency differs as the rates fluctuate over time. 

Some of the most famous cryptocurrencies are Bitcoin, Ethereum, Binance, Tether, Dogecoin, XRP, etc. These coins have gained massive success in terms of their value, and though there is a dip and rise trend, people consider them a good investment option. 

How does CryptoCurrency Work

Cryptocurrency is not your ordinary currency like the dollar, euro, or rupee with any central authority. This currency is digital and encrypted, so there is an algorithm responsible for issuing this currency. 

Cryptocurrency works the same way as PayPal or a credit card, except that you exchange cryptocurrency for products and services instead of currency. 

Both parties need to have a digital wallet to make a cryptocurrency transaction. A cryptocurrency wallet is a kind of software that helps you to move cryptocurrency from one account to another. To execute a transaction, You’ll need a password, also known as a private key. 

The private critical Work in a similar fashion to a bank account. You can have several keys, and all monies can be managed from that private key. History OF Transactions is kept on a public ledger, which displays the totals without revealing the parties’ identities.

This increases transparency in cryptocurrency plus makes it safe to use. This cryptographic proof is issued in the shape of transactions that the blockchain can further verify. 

Are Cryptocurrencies Good Investment?

The most dangerous is losing your private key, which is required to access your cryptocurrency.

Additionally, there is no guarantee that a cryptocurrency project you invest in will become famous as bitcoin. Thousands of blockchain projects are competing for attention.

There is also a possibility shortly, Government may potentially take action against the entire crypto business, particularly if countries begin to see cryptocurrency as a danger.

A good investment like property investment is considered safe as you can be sure the value will increase. 

If we talk about bitcoin and its counterparts, their value has remained stable; thus, it can be considered a safe and sound investment. 

Is Cryptocurrency Legal?

There were several discussions regarding this topic, and several regulations got involved worldwide as many people, companies, and groups got involved. 

It has been used for money laundering in the past, so different regions have created specific guidelines with which the seller must comply. 

In the years 2017 and 2018, exchange commissions crackdown on ICO. US agencies have also been involved with it.  

Due to its rise and interest by business giants, the situation has improved drastically. Since June 2021, major developed countries, such as the USA, UK, and Japan, have deemed it legal. 

Taxation is something with some ambiguity, which is one of the reasons some developing countries are hesitant about its legality. 

Tax companies consider coins such as bitcoin as property instead of a currency for legal purposes. 

Is Cryptocurrency a Better Investment in 2022

If you are a person who follows the most innovative and wealthiest entrepreneurs, you will get the idea that the era of cryptocurrency has just started. People are focusing more on this platform, which is not slowing down anytime soon.

Some multinationals have started accepting their payments in cryptocurrency, so you can be confident that others will also follow this trend. 

Conclusion

Cryptocurrency investment is the new deal, and cryptocurrency markets have made their place stable, especially during this challenging time of the pandemic. For beginners, they must know the market trend, where people are investing, and which coin is gaining popularity.

Like every other business, there is a risk of loss here as well, so it is not just big bucks every time, but sometimes you lose something or, worse, get it stolen.

Hackers who look for solid accounts are available on the internet, so you have to try all the safe approaches. Major countries have given it a legal status, so you can be sure that it will get a better legal status and security in the upcoming time. So the right to invest in it is now.