What is Cryptocurrency?May 26, 2022
If we get a dictionary, we will find the following cryptocurrency definition: “a digital currency produced by a public network, rather than any government, that uses cryptography to make sure payments are sent and received safely.”
To have a clear idea of what crypto stands for, we first need to know where and why it was created.
Brief History of Crypto
Cryptocurrencies were created in 2008, while the world experienced a financial crisis. An individual who, identified under the pseudonym Satoshi Nakamoto, created an accounting whitepaper in which he introduced an innovative technology.
This white paper covered the principles of Bitcoin and the structure behind it, blockchain technology. Even though Bitcoin was the first cryptocurrency, thousands of different cryptocurrencies have emerged to this day, such as Ethereum or Litecoin.
Bitcoin was born as an alternative to printed money. At first, the idea of buying goods or services with digital money was not very popular, and only a few exchanged cryptocurrencies through forums as a test. However, in 2010, the first real thing was bought: a pizza.
Only one year later, some organizations began to accept Bitcoin as a form of payment. As more companies started to accept Bitcoin, the currency gained popularity. Therefore, its value increased.
Cryptocurrencies became very popular due to its decentralized control, security, and efficiency in enabling rapid transactions worldwide.
These are some of the most important characteristics:
- Decentralization: Cryptocurrencies are decentralized, meaning that they do not require intermediaries or third parties to control transactions. Being digital money, you will only need a computer or a mobile phone to use them.
- Security: Transactions allow anonymity, as there is no need to use names or identity documents, but this doesn’t imply that they are not safe. Almost all cryptocurrencies are secured using blockchain technology, which is a network of computers that keeps a record of all transactions (recorded on blocks) that are linked together in the form of a chain by using cryptography. This makes it very difficult for hackers to steal or manipulate information.
- Transparency: With blockchain technology, every transaction done is publicly published for all members of the P2P (peer-to-peer) network that makes all these records can see the same information in the individual blocks.
- Effectiveness: The innovation of cryptocurrencies has shown that a cashless world is possible, allowing international financial transactions to be done in a matter of minutes with much lower commission costs, facilitating the movement of money and investments.
But Where do Cryptocurrencies Get Their Value?
Like any other market, the economic value comes from supply and demand. Therefore, the fewer coins there are, the more valuable it turns out to be.
Cryptocurrencies are created by a method known as mining. Miners are the independent and interconnected nodes that solve mathematical problems and get new coins put into circulation as a reward. Miners review the transactions in a block.
Cryptocurrencies are an alternative, secure, and effective way to exchange goods and services. But we need to consider that it’s necessary to know the market before entering if we want to make a profit. Also, we need to bear in mind that the value of virtual currencies is volatile and that there are external factors that can influence their price movements.