It is possible that you have heard about “cryptocurrency” or that this term sounds very familiar, that leaves you confused or it may leave you with more questions than answer. This is a term that in the last years it has taken a lot of strength and every time more and more people talk about it.
For that reason, it is advisable that we clarify what is a Cryptocurrency and begin to familiarize ourselves with this term and its functions in the digital world. It is possible that every time you will hear more news about this concept.
What is cryptocurrency?
In general terms and in a simple way we can say that a Cryptocurrency is virtual money. They can be exchanged and operated like any other traditional currency, but they are beyond the control of a Governmental or financial institution.
They use cryptography to create new currency units and to secure or manage all transactions with it. The cryptocurrency is created and administered by a software since it has no physical form. It’s all digital.
The emergence of the cryptocurrencies happened thanks to the Internet growth and the global economic crisis that affected thousands of people and several governments back in 2008. This emerged as a good alternative to the lack of physical money.
After several failed attempts, virtual money had a significant growth when Bitcoin appeared on the market back in the year 2009 and this would change the course of history forever.
Since that day, more and more cryptocurrencies have emerged and now there is a large number of virtual currencies available, all with their own features, benefits, restrictions, and applications.
As we previously mentioned, many people consider that cryptocurrencies became a good alternative for traditional currencies, but in reality, these were created with the objective of being a completely conventional payment solution.
Although it is true that its validity as a payment method is fundamental to its value, the cryptocurrencies usually look more like raw materials such as gold. The acceptance of them has reached the point that thousands of stores around the world have already begun to accept cryptocurrency as a way of payment to obtain their services or products.
It is necessary to consider that the value of a cryptocurrency is not only linked to the behavior of a particular economy but that it changes in interest rates and the increase in monetary reserves only to have an indirect effect on their value.
On the other hand, the value of cryptocurrencies depends on the commitment of the users to maintain their price by converting them to traditional currencies. This means that these virtual currencies are treated primarily as an investment whose return comes from speculation around the rises and falls in its own value.
What is blockchain and why is it important?
Most cryptocurrencies use a technology based on something called Blockchain. Blockchain is like a shared digital book in which all the transactions made of a cryptocurrency between two users are recorded.
These transactions form groups known as “blocks”, that are encoded and linked to each other. All the information collected in the blockchain instead of being stored in only one place, it is stored in millions of servers and is open to everyone.
This makes the process transparent and immune as it eliminates a high amount of weak points and human or computer errors. Once the data is verified, it can no longer be edited without the consensus of at least 51% of the community.
It is important to highlight that cryptocurrencies are just one of the various applications used by the Blockchain technology. With this, you can create all kinds of programs as it includes an identity management, security software, and transaction processing.
The crypto coins have many benefits and disadvantages. We will highlight the most important:
Crypto coins often experience significant price movements in a sudden way. This makes them Volatile and gives the users different trading opportunities and different benefits.
They are decentralized so there is no official market. This means that it can be operated 24 hours a day, seven days a week.
Transparency is one of its strongest points and this is given as all transactions are recorded in a shared book and are operated on a mechanism that ensures that the receiver only gets the information it needs from the issuer.
They are global currencies which makes them less susceptible to the economy or policies of a specific country. Anyone in the world can use them and can be transferred instantly.
Crypto coins have the value users want to give them. Despite its growing popularity, there are still doubts about its long-term future.
There is no perfect way to protect yourself from human error, technical failure or fraud and there is currently no system to help compensate users for their losses.
Volatility can be seen as a disadvantage as well as the currency can raise its value in a few days, but it can also bring losses of hundreds of dollars during the night.
To finish off, we’ll just mention some of the most popular cryptocurrencies in the world:
- Bitcoin Cash