Traditional digital banking works through a centralized system that mediates all transactions by keeping a record of all balances. Its basic function is regulating payments within a network that is comprised of accounts, balances, and transactions. It does so in order to avoid inconsistencies such as double spending. This is a term that specialists use to refer to instances when an institution spends the same amount twice. At its start, the first functional cryptocurrency was an attempt at creating a digital cash system that worked with a central entity.
Developers refined the basic idea for this digital money system and eventually became Bitcoin, the first cryptocurrency to make the jump from theory to reality. From then on, several other companies created different forms of cryptocurrency. This article will discuss the most important types of this currency that are currently available. Also, it will go over their main characteristics, uses, advantages and potential benefits.
What Is Cryptocurrency?
Put simply, cryptocurrency is a form of digital currency that uses an encryption technique called cryptography to secure the transactions. As it was previously mentioned, cryptocurrency does not depend on a central entity to oversee transactions. This is possible because it uses a database that nobody can change. Still, everyone involved can see them.
This is important because general and absolute consensus is the only way to guarantee complete transparency in all transactions. At the core of the process, there is a mechanism known as mining. Even though everyone in the network can see transactions, only miners can confirm them, making them part of an unchangeable record of historical transactions called blockchain.
Who Uses Cryptocurrency?
The Number of Bitcoin Transactions Made Per Day. Source: Wikimedia Commons
Even though it is nowhere near to being the prevalent system of monetary exchange, more and more people use cryptocurrency every day. Its users are most people who distrust the centralized system that is offering by international and national banking institutions. Much like gold, one can use digital currencies to establish funds and make payments safe from political influence. Away from the influence of reckless banking and financial institutions, they aim at maintaining and even increasing in value over time.
Even though most people use cryptocurrency platforms to make payments, digital currencies are also great as both a means of speculations and a store of value. As a matter of fact, cryptocurrency markets have experienced a fast growth that greatly benefited investors and speculators. Users have set up exchange systems like Okcoin and Poloniex to allow the trade of hundreds of cryptocurrencies. There are also communities that share cryptocurrency news and insights.
How to Use Cryptocurrency?
Believe it or not, there are hundreds of different encrypted digital currencies available. Some of the most popular are Bitcoin, Ethereum, Ripple, Litecoin, and Monero. However, there are many others, and their number is constantly increasing. Each of them has different values and characteristics. Despite those differences, all digital currencies share some basic aspects that affect the way one uses them. Up next, the basic steps for using cryptocurrency will be described:
- Get a wallet: A digital wallet is a safe digital program that one can use to store, spend, and obtain a digital currency. Most digital currencies have their own official digital wallet. However, there are also various unofficial third party wallets that you can use in a safe and secure way.
- Get the currency: You can obtain cryptocurrency by using a few different approaches. Of course, the most basic way to do it is to accept the currency as payment for goods or services. In certain communities, it can also be obtained as rewards or donations from other users. Finally, you can get it by buying it directly from other users.
- Spend or invest the currency: Day after day, the number of merchants and organizations that accept cryptocurrency as a means of payment grows.
5 Beneficial Properties of Cryptocurrency
- Pseudonymous identities: Unlike traditional currencies, cryptocurrencies do not require you to reveal your real identity at any point during the transactional processes.
- Irreversible transactions: Once you mine and confirm a transaction, no one can reverse it. Even though it may initially seem like a bad thing, this property of cryptocurrency is actually the key to its success. The reason for this is that it guarantees complete transparency by ensures that no one will even try to interfere with a transaction once the user has completed it.
- Fast global reach: Digital currency transactions are propagated in a matter of seconds around the entire globe. After that, it takes only a couple of minutes for the platform to confirm the transaction. This great feature particularly benefits people in remote locations of the world who do not have immediate access to other types of transactional systems.
- Security: Because they use public cryptographic systems to secure transactions, digital currencies are more secure than regular currencies. In fact, cryptographic addresses are more secure than any type of credit card security system. Users can access their own wallets using secure keys in order to make payments.
- Availability to everyone: Nearly all of the available encrypted digital currencies are free to use for everyone. Most of the software programs that are necessary to make do so are free to download at any time. No permissions of any kind are necessary, eliminating basically all the bureaucratic processes that characterize traditional monetary exchanges.
The evidence shows that cryptocurrency is growing at an impressive rate, and there are no signs of this process doing anything but speeding up in the future. An impressive amount of people and turning to Bitcoin and other forms of digital currencies to protect themselves from devaluations of their national currency, among other things.
Minding the various cryptocurrency market cap values, one can make great investments and speculations. Do you think this new type of currency is a step into the future? Let us know what you think in the comments!