If you're reading this, it's probably because you've either heard of cryptocurrency, or maybe because you've only heard of Bitcoin specifically, without even really knowing what it's all about. Cryptocurrency, also called crypto, is a digital or virtual currency of exchange that has been around for over a decade. However, it wasn't until a few years ago that its fame took off, and it managed to be in everyone's conversations. If you want to know exactly what cryptocurrencies are, we offer you a complete guide to understand how they work.
What are cryptocurrencies?
To fully understand the fame of cryptocurrencies, we must first define what exactly they are. Cryptocurrency works as a digital payment method with which you'll not need to verify transactions through banks. Thanks to this exchange system, anyone can send and receive payments from anywhere in the world. The most interesting thing about these currencies is that they don't exist in physical form. Therefore, no company or service can control it.
Unlike a conventional currency, it works through cryptographic methodsthat secure transactions, maintain the creation of new units, and confirm the exchange of assets. Each cryptocurrency has a particular price or value, so it may vary depending on the currency. This is something that in recent years has generated speculation similar to stock market assets. Therefore, many people have chosen to create wallets in services that offer the purchase of cryptocurrencies to buy them and then sell them to earn money.
Cryptocurrency investment isn't something you should consider if you're not aware of these constant changes. Since the value of cryptocurrencies can fall abruptly, you could lose a large amount of money. In case you already have cryptocurrencies, you should know their changing value when making payments. The good thing is that there's a great variety of alternatives in the cryptocurrency market. But we'll get to that later!
How do cryptocurrencies work?
Cryptocurrencies work in a decentralized way through a network of computers with different nodes. This is known as Blockchain since the blocks or nodes are linked and secured through a cryptographic system. This chain generates a kind of rebound effect. When a transaction is made, all the data is recorded in a block, and the rest automatically replicates it. Therefore, no data can be manipulated once it has been registered without modifying the rest of the blocks.
This means that once you make a transaction with cryptocurrencies, either buying or selling this digital asset, you'll not be able to cancel it. Since the blockchain network won't allow it.
And because it's not available physically, you'll have to resort to a digital wallet service. Many exchange companies offer the option to exchange both dollars and euros for cryptocurrencies in a simple way. When you complete the exchange operation, the asset will automatically be saved in your virtual wallet. You can then decide whether to save it or to exchange it.
It's important to note that cryptocurrencies don’t have the same algorithm, as each one has its own. This manages to control the number of units generated annually. The value of each one will highly depend on the supply and demand they have in the cryptocurrency market.
Now it's time to highlight some of the most important features of cryptocurrencies:
- It uses cryptology to establish encryption and secure payments and collections.
- No institution has control over it.
- The security of cryptocurrencies is quite high. It's not possible to duplicate or modify them.
- It offers direct contact with the other person without intermediaries.
- Irreversible transactions.
- No need to reveal your identity, so you can keep your privacy.
Types of cryptocurrencies
Let's talk a little about the types of cryptocurrencies that are available in the market. We have previously mentioned that there's a wide variety of alternatives, so we'll only focus on the most important ones:
This was the first cryptocurrency to appear, it became known through an article published in 2009. "Satoshi Nakamoto" is the pseudonym of the creator (whose identity is still unknown), who described through this article a payment system he called Bitcoin. A few months later he published the first version of the software that allowed the management of the coin's network.
The main purpose of this new currency was to make any type of payment without having to be monitored by any governmental entity. It was also ideal to avoid any delay due to the amount of the transactions. Currently, most people use Bitcoin as an investment method, although it maintains its initial purpose. Many consider it the most important and profitable of all the alternatives in the cryptocurrency market.
Ethereum (Ether, ETH)
This is the second most profitable digital currency among all types of cryptocurrencies. Ethereum is actually the name of a platform whose network allows the creation of applications based on blockchain technology, as well as its own individual tokens. This platform is responsible for providing the fuel needed to develop the network of these decentralized applications. Ether is the name of the cryptocurrency itself, and its main purpose is to pay for the use of the Ethereum platform.
Litecoin is a peer-to-peer open-source currency, which means that it has a public code. Anyone can access this completely decentralized global payment network. Its great advantage is its transparency during each transaction as it shows each of its stages. Litecoin's technology is one of the most advanced. This is one of its strongest points. It even promises to have a much faster and more efficient P2P network than Bitcoin.
Binance Coin (BNB)
This cryptocurrency is particularly issued by the largest exchange chain today, Binance. It was initially used as a utility token linked to the operation of the exchange itself. But nowadays it's a payment method altogether. It also offers the advantage of reducing the cost of fees for each transaction to people using the Binance Coin BNB.