Photo Credit: unsplash/@kanchanaraSome people believe that cryptocurrencies have unlimited potential and use, so they see them as the currency of the future. Others see it as too early to become the currency of the future.
Cryptocurrencies are not yet prevalent, but an increasing number of companies and financial institutions are buying them and trading them day after day around the world.
What are cryptocurrencies?
Cryptocurrencies are virtual currencies that you can trade or buy goods and services using and the point of difference from traditional banknotes is that they do not provide coins or physical banknotes, the money is completely virtual.
Cryptocurrency units can be purchased from brokers or created through an online process called "mining" and used to make payments or store money anonymously.
While the shape of cryptocurrencies is depicted as coins, the physical currency is worthless without the keys printed inside it.
According to Investopedia, more than 4,000 cryptocurrencies are in circulation at the beginning of 2021, and more are being launched over time.
Bitcoin, which you may have heard of, was the original cryptocurrency and still the most widely recognized currency and due to its success bitcoin became the standard for all other cryptocurrencies or "cryptocurrencies" that came next.
However, as of March 2021, Bitcoin has become the second-largest digital currency to be traded after Tether. Both are the only currencies worth more than $100 billion (85 billion euros), making them by far the most purchased and traded cryptocurrencies at present.
What is blockchain?
A blockchain is usually a group of computers connected to each other and all these computers contain the same information and in order to "hack" this information you will need to "hack" most of these computers at the same time and this is very difficult!
There are many blockchain chains in the world. The bitcoin blockchain is the first and oldest blockchain to record all bitcoin cryptocurrency transactions.
How are cryptocurrencies created?
There are two common ways to create cryptocurrencies. One is the style used by Bitcoin and the other is the one used by Ethereum.
In the Bitcoin style, there is a group of people with computers that constantly try to solve mathematical equations, and about every 10 minutes one of these people wins the puzzle and this metal wins a reward that is currently equal to 6.25 bitcoins.
But don't be jealous of these people, they have to spend a lot of money on computers and electricity and they can never be sure how much they're going to earn.
Several years ago, anyone could extract bitcoins or create them using a laptop! but today you need a lot of computer power for this purpose.
In the Ethereum style, you can create your own encryption in minutes where you can create your own digital currency and all you need is to customize intelligent encryption and post it on the Ethereum blockchain.
What are the types of cryptocurrencies?
There are many types of cryptocurrencies that can be used to buy and sell things. Examples include Bitcoin, Dogecoin, Litecoin, and Monero, which governments hate. This is because criminals can use them without the knowledge of governments.
How cryptocurrencies work?
Each digital currency is basically a computer file stored in a digital "wallet" accessible through smartphone applications or internet-enabled devices. these files are transferable (in whole or in part) from person to person via blockchain.
While not all work in the same way, most cryptocurrencies use blockchain technology to conduct secure transactions.
You can buy bitcoin or other cryptocurrencies with traditional funds, any tender issued by the bank, and you can also request that you be paid in digital currencies when selling items.
How safe are cryptocurrencies?
the more publicly recorded transactions added to your currency blockchain, the safer the system, which does not mean that cryptocurrencies are not vulnerable to cyberattacks, frauds, theft, or money laundering.
Some fake currency launches or initial currency offerings (ICO) have been observed and you can also lose your wallet or delete your bitcoins, thus losing them forever.
Cryptocurrencies can be volatile because of speculative trading — as with trading in any commodity — so there may be risks associated with investing in them.
Are they widely used?
Just like gold or diamonds, cryptocurrencies are just another tradable commodity, and many people who use cryptocurrencies prefer them to traditional currencies because they are not controlled or regulated by governments or banks, and because transactions are unknown.
While some countries have banned the use of bitcoin, others are more receptive to their use, for example, the bank of Singapore has indicated that it may replace gold with bitcoin as a store of value.
Cryptocurrencies are not widely used by companies or stores yet, but the list of cryptocurrency-dependent companies is constantly expanding, for example, car manufacturer Tesla and Visa Credit Card Announced in March 2021 that they would recognize them as a payment method, while airBaltic also announced that it was expanding the list of accepted digital currencies.
Online payment service PayPal also announced the last October that it would allow its customers to buy and sell using bitcoin and companies such as Google and Amazon plan to issue their own cryptocurrencies for transactions that specifically include the goods and services they provide.
Are there any drawbacks to the use of cryptocurrencies?
While the benefits of cryptocurrencies are widely promoted, there is a risk element as with any tradable commodity.
According to Coinopsy, nearly 2,000 cryptocurrencies have failed, expired, or been a hoax - and analysts believe many of the currencies currently in use may also collapse at some point.
But why are cryptocurrencies collapsing?
The reasons range from bad design to wrong business models of what cryptocurrencies should have been used for.
There are often trust issues that also affect currency stability and are likely to be more successful if there is clear use and strong confidence in the blockchain technology underlying it.
Some have also criticized cryptocurrencies for being environmentally unsound, and the dramatic rise in their use (especially Bitcoin) has increased the demand for computers to power the technology they support.
Just owning a cryptocurrency puts you at risk of theft, as hackers try to hack into computer networks that preserve your assets and a high-profile stock exchange went bankrupt in 2014 after hackers stole hundreds of millions of dollars in bitcoin currencies.
How do you buy a cryptocurrency?
While some cryptocurrencies, including bitcoin, are available to buy in us dollars, others ask to pay using bitcoin or other cryptocurrencies.
To buy cryptocurrencies, you'll need a "wallet" which is an online app that can keep your currency, and in general, you create an account on the stock exchange, and then you can transfer real money to buy cryptocurrencies.
Coinbase is a popular cryptocurrency trading platform where you can create a portfolio and buy and sell Bitcoin and other cryptocurrencies. An increasing number of online brokers also offer encrypted currencies, such as eToro, Tradestation, and Sofi Active Investing.
Why are cryptocurrencies so popular?
Cryptocurrencies attract their supporters for a number of reasons. here are some of these reasons:
- Advocates believe that cryptocurrencies are the currency of the future and are rushing to buy them now before their value increases.
- Some supporters love the fact that the cryptocurrency removes central banks from managing the money supply.
How do you protect yourself when using cryptocurrencies?
If you are looking to buy cryptocurrency, read the exact details in the company's bulletin:
- Who owns the company? is the owner well known and has a good reputation.
- Are there other major investors investing in it?
- Will you own a stake in the company or just a coin or a token? this distinction is important as owning a stake means that you can share in its profits (you are the owner) while buying a worker simply means that you are entitled to use it.
- Has the currency already been developed, or is the company looking to raise funds to develop it?
What does the future hold for cryptocurrencies?
Bitcoin values and some other cryptocurrencies have risen in recent years, bitcoin has more than doubled in 2021, and Ethereum's value has more than quadrupled this year.
Ultimately, the future of cryptocurrencies (value, security, and power) remains unknown. but experts believe that owning some cryptocurrencies can create value over time, whatever your interests or motivations, and experts stress the importance of making sure you understand market volatility and cryptocurrency risk factors before investing.
So far we learned about the cryptocurrencies, their types, how safe it is to buy and trade cryptocurrencies. Stay tuned for more details!