Understanding the Basics of Cryptocurrency: A Beginner’s Guide

What is cryptocurrency?

In simple terms, cryptocurrency is an asset that exists only online. The name comes from the fact that all of its exchanges are highly encrypted, which makes them very safe. Unlike traditional currencies, which are managed and controlled by a central authority, it is not based in one place. There are only a certain number of cryptocurrencies, sometimes compared to gold and silver.

Mining is the process of solving very hard problems with powerful computers. This is usually done as a reward for making successful cryptocurrency transactions. In other words, when people trade cryptocurrency, it often leads to the creation of more cryptocurrency in the world. Many cryptocurrencies use blockchain to manage and record transactions. Multiple entities keep the same transaction records, making it a safe technology for your investments.

What causes cryptocurrencies to be so volatile?

Because the cryptocurrency market is so new, there is a lot of volatility. Investors want to try out their money to get rich quickly and find out how the prices of cryptocurrencies change and if they can affect them. The price of crypto coins is affected by how many people use them and what they are used for. If more people use them to buy things instead of just holding on to them, the price will go up.

The value of cryptocurrency is also based on how few of them there are. This is a reference to the way cryptocurrency works. The Bitcoin protocol says that 21 million BTC are the most that can be mined. So, as more people join the crypto space, Bitcoin will become less common, which will cause its price to rise. Some coins also use burning to make them worth more by removing some of the supply.

Accounts with a lot of a certain cryptocurrency could start to sell, which would cause prices to drop. These accounts are called “whales” because they hold a lot of crypto assets and can affect the market if a group of people agree to sell them.

The Cryptocurrency Market

As of May 2021, the total value of the cryptocurrency market is a huge $1.7 trillion. At the time of writing, there are more than 10,000 listed cryptocurrencies, which will only grow. In terms of market capitalization, Bitcoin has the largest share, about $650 billion. Ethereum and Tether are next in line.

Cryptocurrency is becoming more and more accepted around the world. This trend has been going on for many years. For example, when Overstock.com, a big US online store, started accepting Bitcoins in 2014, it made $124,000 in Bitcoin sales on the very first day. More interestingly, corporations also realise that this digital asset can be a good investment. In 2020, MicroStrategy Inc., based in the US, bought more than $1 billion worth of Bitcoin.

How is cryptocurrency implemented?

Most cryptocurrencies work without a central bank or government to back them up. Instead of relying on government guarantees, cryptocurrencies are based on a decentralised technology called a blockchain. Cryptocurrencies don’t come in the form of bills or coins. They only exist on the internet. Think of them as virtual tokens whose value is set by the market forces created by people who want to buy or sell them.

Mining is using computer processing power to solve hard math problems to earn coins. This is how cryptocurrency is made. Users can also buy the currencies from brokers and store and spend them with the help of encrypted wallets.

Both a centralised and distributed network

Proof-of-work (PoW) or proof-of-stake (PoS) consensus algorithms are usually used to make blockchains work. PoW is run by miners, who often choose certain computers for the process.

On the other hand, staking is what makes PoS work. In the staking system, rewards are given to people who hold assets in certain wallets to help keep the network running. PoS assets also support controller nodes, a more complicated way to stake that usually needs a certain number of coins.

Bitcoin: The Gamechanger

When the world realised, there were problems with the current financial systems after the 2008 crisis; Bitcoin became a gold rush of opportunities. It was the first cryptocurrency made with blockchain, which may have changed how people think about money. Forbes said that Bitcoin was the best place to put your money in 2013. Today, everyone knows what it is.

Deloitte said more than 2300 US businesses would accept Bitcoin as a form of payment by the end of 2020. This makes Bitcoin an attractive asset for the average person to own.

Why should you buy Bitcoin?

Bitcoin is not only very safe, but it is also peer-to-peer (P2P), which means there is no go-between (like a bank or credit card company), and the transaction costs are low.

It works quickly and is completely open. For example, every Bitcoin transaction you make is recorded in a public ledger that everyone can see. It can’t be made to look like something else. Transactions on the blockchain are also permanent, which makes it even less likely that fraud will happen and makes your investments much safer. You can trade Bitcoin on exchanges like WazirX, which gives investors a safe place to do business. If you are planning to invest in Bitcoin, you can visit https://bitcoin-up.live/.

Are cryptocurrencies legal?

As the crypto industry has grown, rules have been put in place all over the world. Over the years, the US has become more and more careful about keeping an eye on space. After the craze of 2017 and 2018, the Securities and Exchange Commission (SEC) cracked down on initial coin offerings (ICOs). In different ways, the Commodity Futures Trading Commission (CFTC) and other U.S. agencies have also helped.

Also, crypto regulations outside of the U.S. have changed over time as regulatory rules have changed. For example, the fifth Anti-Money Laundering Directive from the European Union says that buying, selling, and doing other things with crypto must follow certain rules in certain areas.

Since crypto is a relatively new industry compared to others, there needs to be more legal clarity about what is needed in all parts of the space. Asset classification is a part of making things clear. Bitcoin and Ether are seen as commodities, but what to call a lot of other assets needs to be clarified.

What might be in store for cryptocurrency in the future?

Is the value of cryptocurrency going to keep going up? It has yet to be determined for sure what the answer is. Still, you can be sure that cryptocurrencies will have a place in the global economy if there are ways to use them, and they are better than fiat currencies.

First, cashless and mobile payments will continue to grow around the world, which will help people use and adopt cryptocurrencies. Cryptocurrencies like Bitcoin will see their technology improve and their use cases grow, leading more businesses to accept them as a form of payment. Utility tokens will have to fight to show regulators that they are not securities. In contrast, stablecoins will show that you can use cryptocurrency instead of fiat money to make cheaper and faster transactions.

The biggest problem with cryptocurrencies is how simple they are to use. To use cryptocurrencies to their fullest potential today, you still need to know a bit about technology. As more projects and developers work on user interfaces and designs, cryptocurrency offerings will get easier for people who don’t know much about technology. Once this happens, be careful because cryptocurrencies can grow as high as they want.

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