Cryptocurrency | Digital Money | 16th December 2021 | Virtual Wire
Have you ever wondered about the mysterious world of cryptocurrency? Do you feel like it is a topic far beyond your understanding or you just can't grasp the crypto gibberish and need a simple explanation?
If your answer is yes, then you came to the right spot. Cryptocurrency is not a new topic anymore. However, many people still struggle to understand what it is. Many articles have been written about crypto, trying to explain it in the best way possible, but a lot of them use a very technical language, which is not the best for all the newbies out there. crypto can be a difficult topic, especially in the beginning. That's why we need an explanation of cryptocurrency in simple English. Let's take a look at crypto explained simply and answer some of the most basic questions about it.
What is cryptocurrency?
Picture -Indian Express
Cryptocurrency, also called crypto, is digital money or digital currency. This currency is virtual, meaning it doesn't exist in a physical form. It exists only electronically and so you can't hold it in your hand like regular coins and you can't withdraw it from an ATM machine like regular banknotes.
How many cryptocurrencies are there? The number of cryptocurrencies is rapidly growing and changing every year. According to data from Statista.com, there were around 500 cryptocurrencies in 2014. The number went up to 1,658 cryptocurrencies in 2018 and as of November 2021, we have over 7 500 different types of virtual coins.
What is Bitcoin and what are some other important cryptocurrencies?
Even those who are not very familiar with crypto have probably heard about Bitcoin. Bitcoin is considered to be the first cryptocurrency to ever exist and for that reason, it remains to be the most popular virtual currency out there to this day.
Founded in 2009, Bitcoin became the original cryptocurrency and gave rise to the crypto revolution. Bitcoin's history is somewhat mysterious as the true identity of its founder has not been revealed. What we know about the creator is their pseudonym – Satoshi Nakamoto. However, whether it's a single person or group of people remains a secret to this day.
Some other important and well-known cryptocurrencies are the following:
Binance Coin (BNB).
Despite there being thousands of cryptocurrencies on the market, Bitcoin is still reported to be the most commonly held virtual currency.
How are cryptocurrencies created? What is cryptography?
If crypto is not even physically real, then how does it come into existence? Cryptocurrencies are created using code, which dictates the ins and outs of them. For example, the code defines things like the maximum number of coins that will ever be created in that particular currency. That is called the maximum supply. To give you an example, Bitcoin's maximum supply is 21 million. The code itself relies on cryptography (that's why “crypto” currency). To put it simply, cryptography is secret writing. It is based on coding and decoding messages in order to keep them secure.
Cryptography in cryptocurrencies guarantees the security of the transactions and many other things. How? It makes the transaction or another message readable only for the intended recipient. That way, an unauthorized reader or recipient cannot process it. In theory, anyone who knows how to write computer code has the opportunity to come up with their own digital currency. For that reason, the number of cryptocurrencies rises every day as new currencies keep entering the crypto market.
Crypto Mining – How Does It Work?
What is crypto mining? How does crypto mining work? Simply put, cryptocurrency mining is the process of creating new coins, which happens by solving complex mathematical equations. People who get involved in this process are called crypto miners and are often looking for profit. They use high-powered computers in order to compete against each other in solving equations.
The computers are set to take many guesses per second to try and solve them. The first miner to solve these equations gets a reward known as a mining reward. This mining reward is also defined by the code when the currency is created. However, that's not all that the mining involves. By solving the complex math problems, the miners also validate the crypto transactions on a database called the blockchain.
This database makes the transactions traceable. The question is though – is crypto mining worth it? With the high storage space and energy consumption and the need for high-powered hardware, it is nearly impossible for the average user to make mining profitable.
What are the advantages of using cryptocurrency?
While there are certainly a lot of cons to cryptocurrencies, there are also many benefits that may even suggest that virtual currency is a better solution than traditional money. What are the advantages of cryptocurrency?
Decentralization – cryptocurrencies are not under the control or regulation of the state or any other institution.
Eliminating the middle man – there is no need for banks with cryptocurrency, the users communicate directly through a peer-to-peer network.
Hedge against inflation – there are no central banks to print too much money and cause inflation because there is the maximum supply.
Transparency – all transactions are recorded in a database called the blockchain, which makes them traceable.
Speed and security – the transactions are made almost immediately and are very secure thanks to cryptography.
All the benefits of crypto may lead us to believe that digital currency is flawless. That, however, is definitely not the case. One of the biggest disadvantages of cryptocurrencies is volatility, which means that their value is likely to change rapidly and unpredictably. For this reason, investing in crypto can be risky. The main reason for volatility in digital currency is the newness of it all. In this respect, traditional currencies are certainly more reliable, simply because they have been around for much longer. What about you? Do you know anyone who has invested in cryptocurrency? Are you planning to do so yourself in the future? Tell us in the comments below!