What is Cryptocurrency?
Cryptocurrency or “crypto” is a decentralized digital or virtual currency. It can be used to buy normal goods or services, provided that the vendor accepts cryptocurrency. However, this isn’t how crypto is mainly used nowadays.
Due to the nature of anything digital, and the presence of cybercriminals, cryptocurrencies used advanced cryptography and digital signatures to secure and record any and all transactions in Decentralized Ledger Technology, like the Blockchain.
Nerdwallet has also stated that as of 3 December 2021, the total value of all cryptocurrencies are at $2.6 trillion.
How are cryptocurrencies used?
Cryptocurrencies can be used just like any other normal currency, to buy goods and services. However, as stated above, this isn’t their main use. Currently, cryptocurrencies are mainly used for trading, much like stocks and precious metals.
Cryptocurrencies can be obtained in a number of ways. Firstly, you can purchase them with normal physical money, but in order to do so, you will need a digital “wallet”. Secondly, you can trade them with other cryptocurrencies or normal currency on an exchange. And lastly, you can use advanced computers that run programs to “mine” the cryptocurrency of your choice.
Investopedia has done a post on the process of Bitcoin Mining.
Should you look at getting into Crypto?
While cryptocurrencies gain popularity with each passing day, you may want to hop onto the train. However, before doing so, there may be a few things you want to consider first.
Firstly, when investing and trading in cryptocurrencies, you need to understand that they are incredibly volatile. Meaning that their prices and values change significantly, in a short amount of time. It may be a wiser choice to invest in stocks and currency exchanges, as they are far more established and secure. On the other hand, the volatility of cryptocurrencies can be a blessing, you could invest a low amount, and see exponential growth. High risk can mean a high reward.
Secondly, if you want to get into mining crypto rather than investing, it could cost you quite a bit to get started. There are 2 different ways to mine crypto, one is Proof of Work and the other is Proof of Stake. To read more on these different types of mining, check out Forbes’post on the topic. Proof of Work mining requires a lot of special (expensive) equipment and a huge amount of electricity to validate transactions by solving complex puzzles. Proof of Stake limits your transaction validations based on how much crypto you are willing to “stake”. While this uses less computing power and electricity to complete, you do need cryptocurrency before you can even begin mining, and the more you stake, the more likely you are to be chosen to verify a transaction and mine the cryptocurrency.
Many say cryptocurrencies are the currency of the future. And due to their security and their ability to remain outside government control, this may be the fact. But at the moment, their volatility makes them difficult to circulate for normal daily transactions. They are growing in popularity, but you need to ensure you understand the risks and costs involved in starting a crypto journey.