What Is Crypto And How Does It Work?

what is crypto

“What is crypto and how does it work?” is a question that many newbies to the e-currency world have, and in this article, I will explain it in-depth.

What Is Cryptocurrency?

Cryptocurrency (crypto) is a type of digital cash. You can digitally transfer traditional, non-crypto currency money like the US dollar, but this isn’t the same as how cryptocurrencies work.

Cryptocurrencies are distinguished by the technology that sustains them and that they address some of the issues of traditional banking, including how:

  1. With traditional banking, a group of intermediaries, such as banks and brokers, take a share of the transaction, making it expensive
  2. Billions of individuals are unbanked or underbanked, meaning they do not have access to financial services.

How Does Crypto Work?

Blockchain technology supports cryptocurrencies, but what is blockchain exactly? A blockchain is a digital ledger of transactions. This database (or ledger) is shared over a network of computer systems.

A single system does not control the ledger. Instead, a blockchain is maintained, and a decentralized network of computers authenticates transactions. Blockchain technology can improve data openness, trust, and security when shared across a network.

Every new block must be validated before being confirmed by each node, making faking transaction histories almost impossible.

That said, crypto works like traditional currency, but better. Some online stores accept it, so you can use it to buy products and services. Also, you can invest crypto in various ways and grow your income, whether passively or actively.

Brief History Of Cryptocurrency

Bitcoin was the very first crypto. It was the first product of the first blockchain, created by an unknown entity known only as Satoshi Nakamoto.

Satoshi Nakamoto first proposed Bitcoin in 2008, calling it a “pure peer-to-peer form” of digital currencies.

Until 2011, Bitcoin was the only cryptocurrency. Then, as Bitcoin supporters began to see faults, they decided to build alternative coins, often known as altcoins. The goals of some of them are to improve in areas such as speed, security, and privacy.

Litecoin was one of the earliest altcoins, aiming to be the silver to Bitcoin’s gold. There are currently over 1,600 cryptocurrencies accessible, with the number projected to grow in the future.

How Secure Is Cryptocurrency?

Cryptocurrencies are generally built utilizing blockchain technology, as previously stated. Every transaction is written in blocks with the correct timestamp.

It could be a time-consuming and challenging process, but the result is a secure digital record of crypto transactions that cybercriminals can’t change.

While security precautions are in place, that does not mean that hackers cannot access cryptocurrencies. Thefts of high-profile bitcoins have wreaked havoc on the industry.

Nevertheless, crypto has one of the highest and tightest security systems in the financial world.

Top 9 Most Popular Cryptocurrencies

a phone with an app showing cryptocurrency prices and a coin on top of the phone

Did you know the Russian President Vladimir Putin and the American Fast Food Company Burger King have something in common? They each have their cryptocurrency.  PutinCoin and WhopperCoin may perhaps be the only thing they have in common.

Their namesake cryptocurrencies are among the thousands of digital currencies that make up a rapidly expanding marketplace attracting investors’ attention.

Crypto like Ethereum and Bitcoin have a growing track record of holding and gaining value over time. Despite recent market volatility, lesser-known cryptos are seen as far more volatile.

Below is a list of the most popular crypto in 2021.

  1. Bitcoin
  2. Ethereum
  3. XRP
  4. Cardano
  5. Stellar
  6. USD Coin
  7. Chainlink
  8. Polkadot
  9. Bitcoin Cash

Bitcoin

Bitcoin (BTC) is the most recognized and valuable cryptocurrency, despite its tremendous volatility throughout its existence. Due to its value, this is the cryptocurrency that most newbies want to buy when they first get into crypto, but the high value can also be a big barrier to entry.

Ethereum

Ether (ETH) is the Ethereum network’s money, an open-source blockchain that programmers can develop applications and other cryptocurrencies.

With the current market cap, it is the second-largest cryptocurrency, after only Bitcoin. Ether’s value has risen considerably since its introduction in 2013, but it still trails Bitcoin’s value.

XRP

The Ripple digital payment network uses the XPR cryptocurrencies.

XRP, a cryptocurrency designed for digital payments, claims to offer a faster and more efficient means to make international payments.

Cardano

The coin, also known as ADA, advertises itself as a more secure and efficient way to remain decentralized.

Stellar

Stellar’s native cryptocurrency is the Lumen (XLM).

Users can generate, send, and digital trade currency using Stellar, an “open network for keeping and transferring money.” It’s designed to sell and trade any crypto, not just Stellar Lumen; but, to conduct deals, you’ll require Lumen.

USD Coin

The USD Coin (USDC) promotes itself as “the world’s digital currency.” Circle, a worldwide financial corporation, created USDC.

The rate of the USD Coin is tied to the US dollar, and it’s a stablecoin, so not volatile. It is ideal for digital payments because of its stability. Still, other cryptocurrencies have a more significant potential for growth as investments (along with more risk of losing value, of course).

Chainlink

Chainlink is a decentralized oracle network positioned to play a key role in the real-world use of blockchain technologies. The network aims to provide input on a wide range of external data sources.

Though blockchain is fantastic at what it does — providing a decentralized, secure database for virtual transactions — it isn’t great at taking input for events that happen outside of it.

Markets are influenced by various “off-chain” forces, including fiat currencies, credit cards, and even the weather and sports results. 

Chainlink, as a decentralized oracle, may offer information to smart contracts.

Polkadot

The next coin on the list is Polkadot (DOT). It claims that one of its goals is to enable multiple blockchains to communicate data and transactions. Its website emphasizes data and identity protection, as well as user autonomy.

Bitcoin Cash

Bitcoin Cash is another popular crypto, and it is a peer-to-peer digital cash system, like Bitcoin was designed to be. 

Though each of these top cryptocurrencies is distinct in its way, they are all linked by a decentralized finance premise (DeFi).

What Are The Disadvantages and Advantages of Cryptocurrencies?

Advantages Of Crypto and Blockchain

Cryptocurrencies make finances simple and accessible to anyone anywhere, without the restrictions of traditional banks and financial systems.

Also, cryptocurrency systems are secure. Encryption algorithms and other incentive systems like Proof of Work and Proof of Stake secure these transactions.

For violations of a conventional financial institution’s Terms of Service, accounts may be canceled without notice, causing you, the account holder, to find means to jump through hurdles to re-enter the system.

Perhaps an essential bitcoin advantage is that you are the single owner of the public and private encryption keys that comprise your cryptocurrency network identity or address.

Unless you’ve given a third-party provider control of your wallet, you have the private ownership of the private and public encryption keys that make up your blockchain system identity or address.

Also, investment opportunities are open to any crypto holder and have a low barrier to entry for nice rewards.

Disadvantages of Crypto And Blockchain

Price volatility is a significant problem. There is a risk here, but it can be mitigated by directly tying bitcoin and other cryptocurrencies’ values to tangible and intangible goods (as some new players are doing with energy derivatives or diamonds). As adoption rises, consumer confidence should climb as well.

Scaling issues are one of the most common concerns with cryptocurrencies. Despite the fast growth and adoption of digital coins, the payment giant VISA processes more transactions daily than digital coins.

Unless the infrastructure supporting these technologies is rapidly scaled, cryptocurrencies will be unable to compete with players such as Mastercard and VISA in terms of transaction speed.

A transition like this is complicated, challenging, and far from flawless.

The incredible thing is that a variety of solutions (such as lighting networks, starking, and sharding) have been proposed, and these are likely to address scalability difficulties in the future.

How Can You Buy Cryptocurrency?

The procedure for purchasing Ethereum — or any other cryptocurrency — is the same as for purchasing Bitcoin.

Select An Exchange Platform

You need to convert your US dollars for Bitcoin or other digital currencies through a cryptocurrency trading platform.

There are numerous cryptocurrency exchanges where you can buy cryptocurrencies online, but Coinbase is one of the most popular platforms. It is an online platform where you may purchase and trade cryptocurrency.

A few things can help you narrow down your search for the best platform, and they are listed below:

Security

Although some exchanges also have their insurance coverage in place to protect investors from hackers, there is a chance you lose all of your money if your account or the site where you store your coins is compromised.

If you choose to keep your cryptocurrency on an exchange account rather than moving it to your wallet, make sure you choose one that uses offline, cold storage and has robust anti-theft measures.

Coins Available At the Exchange Platform

Not every coin is available on every exchange.

Popular cryptocurrencies, such as Bitcoin (BTC) and Ethereum (ETH), are available on almost all cryptocurrency exchanges. However, lesser-known altcoins may only be available on a few.

This shouldn’t be an issue for most new investors, but if you want to purchase some other coins from the same exchange, you may consider more robust exchanges.

Fund Your Online Account

Most exchanges allow you to connect your bank account or debit card to transfer US dollars into your exchange account.

Depending on how you load your account, you may incur varying costs; bank transfers are usually less expensive than credit card choices.

Understand that funding your account isn’t the same as buying cryptocurrency.

You wouldn’t want to leave money in your account that hasn’t been invested, just like you wouldn’t leave it uninvested in traditional investing.

You’ll still need to swap your dollars into Bitcoin or another crypto once you’ve funded your account.

Place An Order

You’ll be able to place your Bitcoin order once you’ve connected a payment method. Depending on the exchange you use, this process may differ.

If you’re using a platform like Coinbase, you can usually enter the amount in dollars you wish to trade for Bitcoin and acquire it at the current rate.

Practise Self Storage

Many exchanges let you keep your money in your account, the most convenient option for most beginners. However, if you want to make your digital assets even more secure, you can put them in a cryptocurrency wallet.

A cryptocurrency wallet is a digital money storage device. There are many different types of bitcoin wallets available, each with a distinct level of protection.

You may be able to transfer your coins from your exchange account to a more secure wallet if the exchange you use has a wallet option. 

You can also utilize third-party software or cold storage on a hardware device not connected to the internet.

Conclusion

Bitcoin is a good place for new crypto investors to start. It has the longest track record for investors to examine as the first crypto. 

However, it would be best to do your due diligence when starting to invest as a beginner.

It’s vital to remember that all cryptocurrencies have hazards to avoid, and you’ll need to know how to prevent them while investing.

If you have questions, don’t hesitate to contact us using this link. Kindly sign up for our email list to receive updates, information, and insights on crypto investments by filling out the form below.

Get exclusive insights

Get exclusive insights that are only for the Passive Streams community

About the author

Leave your comment

Leave a Reply

Subscribe

Sign up for weekly tips on how to make free money.