What is Cryptocurrency? Here’s What You Need to Know

Publish Date: in Finance Today

What is Cryptocurrency? Here’s What You Need to Know

What do you know about Cryptocurrency?

Today, it is a widely held belief that cryptocurrency could be the financial future of the world.

A cryptocurrency, also known as crypto, is a decentralized, encrypted digital currency used to buy goods and services,  although most people tend to see them as investments,  much like other assets, such as stocks for instance. This currency is based on blockchain technology, which is an open distributed online ledger that records transactions in code. In simpler terms, it’s like a small checkbook that is circulated across numerous computers globally. Transactions are recorded in “blocks” linked together on a “chain” of transactions.

 

The most popular versions which you may already be familiar with are Bitcoin and Ethereum. However, you might not know that there are actually over 6,000 different cryptocurrencies in circulation worldwide. 

 

Bitcoin, the first cryptocurrency, was designed and popularised  by Satoshi Nakamoto in his paper titled, “Bitcoin: A Peer-to-Peer Electronic Cash System.”, where he describes it as “an electronic payment system based on cryptographic proof instead of trust."

 

Characteristics of the Cryptocurrency

 

  • The encrypted currency is an electronic financial currency that relies on electronic encryption through blockchain, which ensures that the recorded data cannot be changed. Thus, this ensures the security and stability of the currency.
  • Cryptocurrency is decentralized so that no one can control it. There is no worldwide central authority that manages and maintains the value of a cryptocurrency, unlike regular currencies such as the US Dollar or the Euro. 

 

You might not know that there are actually over 6,000 different cryptocurrencies in circulation worldwide. 

 

  • Cryptocurrency is dealt through electronic addresses, not individuals. For this reason, the identities of cryptocurrency users are kept anonymous. This protects the currency from undue influence in any way, political or otherwise.
  • Cryptocurrency is limited in availability, thereby reducing inflation.
  • Cryptocurrency value is determined by supply and demand and is not tied to gold or another currency

 

Reasons behind Its Popularity

 

  • It is believed that cryptocurrency will become the currency of the future, and, as such, there is a rush to purchase them as soon as possible, based on the idea that they will become more valuable over time.
  • It essentially removes central banks from managing the money supply, which according to some supporters, is an advantage, as they hold the belief that these banks tend to reduce the value of money via inflation
  • Some consider blockchain technology to be more secure than traditional payment systems

 

What Are They Worth?

Cryptocurrencies' total value on April 13, 2021, was over $2.2 trillion, and the total value of all Bitcoin is currently about $1.2 trillion.