Cryptocurrency

Updated on March 11, 2024
Article bySayantan Mukhopadhyay
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

Cryptocurrency Meaning

Cryptocurrency refers to the technology that acts as a medium for facilitating the conduct of different financial transactions which are safe and secure. It is one of the tradable digital forms of money, allowing the person to send or receive funds from the other party without any help from the third-party service.

Cryptocurrency

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The cryptocurrency market does not rely on the conventional banking system by finding a replacement in a peer-to-peer system that allows any individual from any corner of the world to send and receive payments. Instead of physical cash, these currencies are driven by blockchain technology that can only be accessed by its owner through a unique key.

Key Takeaways

  • Cryptocurrency is the technology that acts as a medium for providing various financial transactions that are safe and secure. One can use cryptocurrency for donations, higher education, and travel.
  • It is one of the tradable digital money forms, permitting the person to send or receive funds from the other party without help from the third-party service.
  • Cryptocurrencies are secure and irreversible with no need to take permission, super-fast, no need to take care of particular locations, and can hide identities online.
  • Litecoin, Ethereum coin, bitcoin, ripple coin, and Dash coin are the top five cryptocurrencies.

Cryptocurrency Explained

Cryptocurrency refers to the digital payment system powered by a block-chain technology that eliminates the need for physical cash as the peer-to-peer system allows individuals to send and receive payments from anywhere in the world.

A natural at this point might be that currencies are printed by governments, earlier through printing currencies based on their gold reserve; and if crypto is not controlled by the government, who has the authority to produce them?

The creation of units of cryptocurrencies is done through a process called mining. It basically refers to the process of solving complicated mathematical problems to generate coins. Otherwise, investors can buy these block-chain powered coins through brokers from their cryptographic accounts.

However, it is important to understand the fact that if an individual owns a certain unit of a particular crypto, they do not have anything tangible. However, they have a digital record of the units they hold and they can continue to use it as a mode of payment. The demand and supply have an effect on the cryptocurrency price just like other markets.

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Explanation of Cryptocurrency in Video

 

Mining

Mining refers to the process of using specialized computers to generate new crypto coins and verifying new transactions. It comprises decentralized computers, with fast connectivity across the globe to verify transactions through a decentralized network. The computers are rewarded with coins for their processing powers.

It is a cycle that keeps continuing like this- miners maintain a secured blockchain network, the system provides them with incentives for the maintenance, and motivated miners continue maintaining the network.

In 2009, pretty much anyone with a functioning computer could mine coins on the blockchain. However, more than a decade later in 2019, after millions of users have joined the network, the need for a stronger and faster computer has been on a steep rise. According to reports, the computing power needs to be 12 trillion times more to mine a single bitcoin than it did in 2009.

Features

Let us understand the cryptocurrency market by first understanding its features. These shall help us understand the ebbs and flows of this emerging asset class.

  1. Cryptocurrencies are very secure: They are secured by cryptography codes and locked using a public cryptographic system. Every owner has a private key. So, no one can access that private key other than the owner. The cryptography used to create this private key is so strong that the numbers are so huge that it is almost impossible to break. Therefore, one can use cryptocurrencies without fear of security.
  2. Transactions in cryptocurrencies are irreversible: One of their disadvantages is the irreversibility of transactions. When you use cryptocurrency like bitcoin, you must confirm before the trade occurs. Once you give the confirmation, the transaction will be initiated. And no one in the world could stop that transaction, not even Satoshi Nakamoto himself (or themselves). So, to deal with cryptocurrency transactions, you must be much more responsible before confirming a transaction.
  3. There is no need for permission: You do not need to take a permit from anybody while using it. That means there would be no gatekeepers stopping you from using the currency. All you need to do is to install free software and use it. This specific feature gives users much freedom to use cryptocurrencies as they wish.
  4. Super-fast: Another great feature is that they are super-fast. If you initiate a transaction, it is immediately caught up in the network and confirmed within two minutes.
  5. These currencies do not care about the specific location: Cryptocurrencies do not care about the owner’s physical location. So you can send cryptocurrency to your relative down the street or send the same to a friend from another world. And the transactions would take the same time and would be treated similarly.
  6. One can hide real-world identities: Many people are scared to death when they need to share their identities online. However, in the case of cryptocurrencies, you do not need to provide your real-world identities. All you need to have is an address that has around 30 characters. And you would be able to access their benefits easily.

Top 5 Cryptocurrency

Since this form of decentralized currency took the world of finance by storm post the COVID-19 pandemic, countless coins were mined, invested, and traded. However, given the volatile nature of the cryptocurrency market, it is vital to recognize the best-performing coins before investing in any such coins.

#1 – Bitcoin

Bitcoin is everywhere these days and is currently number 1 on the list. You can learn more about Bitcoin – advantages disadvantage here.

#2 – Ethereum

Ethereum is second on the list. It is one of the most talked-about cryptocurrencies in present times. After bitcoins, Ethereum has taken the place of the largest-growing cryptocurrency in the world. In 2017, Ethereum grew by around 500%, whereas Bitcoins have raised around 1000%. Ethereum was created by Vitalik Buterin, one of the most sought-after names in this industry. Learn more about Ethereum.

#3 – Litecoin

Litecoin is a possible alternative to Bitcoin. It was created in 2011 by Charlie Lee. After Bitcoin, it is the third in terms of the time and duration of cryptocurrencies. Even if Litecoin did not get as much attention as it deserves, the most important thing that needs our attention is that Litecoin is much faster than Bitcoin and the transaction fees are almost zero. Learn more about Litecoin.

#4 – Ripple

Ripple works similarly to Bitcoin or Ethereum. However, you can send the payments in real-time using distributed financial technology. The difference here is that it works with banks and allows sending of money. Learn more about Ripple.

Find out the differences between Ripple vs Litecoin

#5 – Dash

Dash was launched in 2014 and has become one of the largest peer-to-peer networks of master nodes. As a result, Dash can provide more capacity to users and a secure environment. Learn more about Dash.

How To Invest?

For investors with a keen interest in making investment in this market, they can do so through four major ways. Let us understand them through the explanation below.

  • Direct Purchase: Investors can directly purchase one of more coins and add it to their portfolios through brokers. These coins are available on their websites and applications. The coins range from established cryptos like Bitcoin, Solana, and Ethereum to virtually unknown coins that are being mined at a speed of knots. Investors can also invest through the Initial Coin Offerings (ICO) that come up when a new coin is mined.
  • Companies: If the exposure into the market fully is too risky for an investor, they can choose to invest in companies that hold a significant quantity of crypto in their balance sheets. PayPal Holding Inc. and Micro Strategy Inc., are examples of such companies.
  • Focussed Funds: As discussed before, this asset class is potentially riskier than other asset classes such as equity. Therefore, investors can choose to pay a fund manager who manages a basket of coins, their buying and selling. This hedges a certain percentage of risk as the fund manager has a certain level of expertise in the market and can negate the beginner or intermediate investor’s mistakes.
  • Mining: For investors with sheer conviction in this decentralized form of currency and a huge capital at their disposal, they can choose to mine coins on their own to establish a completely different form of investing altogether.

Uses

It does not make sense to know about something if you do not know any practical use of that subject. It is the same for cryptocurrency as well. Therefore, let us understand how cryptocurrency prices are useful for investors and how they can make most of it through the points below.

  • Donation: Do you worry about donating but not reaching the right receiver? With its use, you can give without any hassle since it is a peer-to-peer network and is very secure and fast.
  • Higher education: The University of Nicosia offers higher education, and they are the first university in the world to accept bitcoins as fees. So, if you have your bitcoins ready, you can get a higher education quite easily.
  • Travel: If you want to travel the world and all you have are bitcoins, be ready for the treat. Go to travel websites and book your flights, cars, and cruises.

Frequently Asked Questions (FAQs)

How does cryptocurrency work?

Cryptocurrencies work on a distributed public ledger called blockchain, where currency holders update and hold a transaction record. Cryptocurrency is created through mining, using computer power to resolve complex mathematical problems that make coins.

Is cryptocurrency the future?

Bitcoin is a sign of the crypto market with the largest market cap. The remaining cryptocurrency follows this direction. Moreover, the global recession horror influences equities and currencies. Consequently, instead of high trade volatility, some experts expect that cryptocurrencies may view some renewal in 2023.

Is cryptocurrency safe?

The majority of Bitcoin networks have extremely safe transactions. Despite being decentralized, crypto users must take essential security measures. The blockchain technology that powers it is inherently secure.

Is cryptocurrency dead?

No, crypto is not dead. Moreover, the backset and resultant revival in other economic investments in the past indicates that crypto is far from over.

This article is a guide to Cryptocurrency and its meaning. Here, we discuss the top 5 cryptocurrencies, including their features and uses. You may learn more about financing from the following articles: –