Everyone in the world today has been hit by the cryptocurrency wave, a large influx of people quitting their 9-5 jobs to go fully into crypto trading and analysis.
Governments of different nations are pulling manpower and resources into the development of their respective cryptocurrencies.
Honestly, what a time to be alive where a virtual currency can be worth so much when traded for physical cash.
This begs the questions, what exactly is a crypto currency, how do they work, why do they cost so much, and what are they used for.
Today is indeed your lucky day as the purpose of this article is to offer deep insight on everything you need to know about cryptocurrency giving reasons why you should own one.
Cryptocurrency Overview
Photo by Karolina Grabowska
Cryptocurrency is a digital asset that uses blockchain technology to secure any transaction.
This differs from the conventional banking system because information on the history of any cryptocurrency transaction is open for the public’s consumption whenever the need arises.
Another peculiarity is that cryptocurrencies do not have an overseeing body and transactions are recorded using decentralized technology.
Enough on what sets cryptocurrency apart from the traditional banking system, we are here to know What exactly is Cryptocurrency?
Cryptocurrency commonly known as crypto is a virtual payment system that doesn’t need the traditional banking systems to validate transactions.
It instantly eliminates the need for a “middle man”, as transactions can now be carried out directly between the interested parties. For example, if you need to make payments or receive transactions, cryptocurrency makes this possible without having to go to the bank or use your payment cards.
The development of cryptos has unshackled people from the limitations of traditional banking systems and enabled them to make transactions using only their cryptocurrency wallets.
The first cryptocurrency was created in the year 2008 by Satoshi Nakamoto which he called Bitcoin!
This development led to the increase in the number of crypto mining, cryptocurrencies and the general acceptability of the currencies by the people.
Mind you, as earlier stated cryptocurrencies work on blockchain technology which renders the records open for public consumption.
So now, we are going to discuss what blockchain technology
What is Blockchain Technology
Photo by Ivan Babydov
Several times, the term blockchain is used inappropriately because people have little or no knowledge of what exactly it is.
Blockchain Technology is a system of recording data in such a way that it is impenetrable to alterations or hacking.
The term “block” was derived because transactions were stored in the system in the form of blocks.
It is a decentralized register containing transactions that are reproduced and a copy is circulated across the entire blockchain system. Blockchain is managed by the Distributed Ledger Technology database.
There are four different types of blockchains but one of importance in our discourse today is the Public Blockchain.
A Public Blockchain is a type of blockchain that bars no restrictions, allowing access to data to users because of its decentralized nature.
The Relationship between the Public Blockchain and Cryptocurrency
A public blockchain is essentially used to mine and transact cryptocurrency.
All the cryptocurrencies in circulation were mined using open blockchain technology. Here, the miners generate blocks for transactions by providing solutions to cryptographic equations on the system.
The miners are compensated for their efforts with small amounts of cryptocurrencies, thereby making them one of the first owners of the cryptocurrency. For example, during the early 2010s when bitcoin was still setting out, miners were given over 20 bitcoins as compensation before they had to reduce the quantity to prevent too much bitcoin in circulation.
Buying and selling of cryptocurrencies are also monitored using an open blockchain. The readings show the influx and efflux of cryptocurrencies at any given time.
A lot of questions about their model of operation have been asked over the years, here are the answers to the troubling questions. Keep on reading to know more.
How Blockchains Work
Before we dive into how cryptocurrencies work, I will give you a detailed model of operation on Blockchain technology.
For data on cryptocurrencies, blockchain stores the transaction in a sender, receiver, and amount format.
Each block is a collection of data on a particular transaction summarized by a digest. The digest is now replicated on the first line of the incoming block. In the event of any alteration to data on the first block, the digest in turn is changed and will not match the first line of the incoming block.
The system on recognizing the lack of consistency removes the tampered block replacing it with the initial block.
The hash is the cryptographic signature responsible for the immutability of blockchain technology.
Proof of work makes it possible for the alteration of inconsistent hashes by giving incentives to miners responsible for finding unique hash values.
These processes are what make blockchain technology unique and secure. This sets them apart from the traditional ledger system.
Benefits of Blockchain Technology
- Creation of trust
- Immutable transactions
- Traceable financial transactions
- Faster and error-free transactions
- An automated technology
- Unbreachable security measures
- Cost-effective transactions
Companies using Blockchain Technology
- International Business Machines(IBM)
- Microsoft
- Ford Motor Company
- Pfizer
- Toyota
- Amazon
- Samsung
- Apple
- Walmart
- Management of a nation’s identity system
- Supply chain management
- International transactions
- Money laundering protection
- Healthcare
- Tax compilations
- Electoral processes
- Cyber security
- Storage of large data
- Entertainment sector
- Crypto games
As we can see, blockchain technology is used in virtually every sector in the world today.
How Cryptocurrencies Work
As earlier stated, cryptocurrencies operate using blockchain technology. They are generated through mining by proffering solutions to cryptographic equations.
They can also be purchased from brokers into personal cryptocurrency wallets where their values will be used for financial transactions.
Remember, owning a cryptocurrency is immaterial, the purchasing power is the real value of the cryptocurrency.
One good thing about cryptocurrency is that there is no transaction limit making it possible for you to send or receive cryptos worth over billion dollars without the restrictions of the traditional banking system.
Examples of Cryptocurrencies
Talking about cryptocurrencies would not be complete without mentioning some examples of common cryptos.
There are over 1,000 cryptocurrencies in circulation today, including ones launched by IT-giants like Facebook metaverse crypto currency, but there are few ones that have high values and are popular among us. They include:
Bitcoin
Developed in the year 2009, Bitcoin today retains its status as the most popularly transacted cryptocurrency.
The creation of bitcoin led to the metaphoric rise of crypto invest and other cryptocurrencies.
Ethereum
Ethereum was first created as blockchain technology. Over the years, blockchain technology developed its cryptocurrency known as Ether(Eth). Ether is currently the second-most transacted cryptocurrency in the world.
Litecoin
This cryptocurrency was developed as a bitcoin alternative.
Litecoin has made recent advancements such as an increase in the number of transactions and quicker payment methods making it a viable payment option.
Ripple
Ripple offers its versatility in areas other than cryptocurrency.
The company that introduced ripple gained popularity because of its dealings with banks and other financial institutions. Ripple has since then developed its cryptocurrency and named it XRP.
Cryptocurrencies other than Bitcoin are known as Altcoins.
The surge in Bitcoin prices has had a positive impact on Altcoins.
Altcoins are beginning to gain worldwide acceptance, going on to become household names in our daily transactions.
Before purchasing an Altcoin, you should endeavor to do both fundamental and technical analysis or rather consult the services of crypto experts. This is because of the increasing “blood bath” caused due to purchase of unyielding altcoins.
Unyielding altcoins are popularly referred to as “shit coins”, these are relatively cheap cryptos that are risky bargains to purchase due to their volatile nature.
How To Purchase Cryptocurrency
Now you have been enlightened on the basics of crypto but still don’t know how to buy it. Below are steps on the purchase of cryptocurrency:
Selecting a Broker
Before selecting a broker, there are key things you should look out for in the platform. They include:
- Presence of the cryptocurrency of your choice.
- The fees they charge
- The security protocol of the platform
- Storage Options
- Withdrawal Options
The broker that meets up to the criteria listed above will be selected.
Funding your Account
Once you are done with selecting a broker, the next step is to fund your account.
Broker accounts can be funded using fiat currencies, credit cards, debit cards, or wired transfers.
The duration before the payment reflects on your account depends on your payment methods. You will also be charged whenever you buy cryptocurrencies.
Placing an Order
After funding your account, the final step is to place an order. In your account, you will enter the quantity of cryptocurrency you want to purchase then click on the “buy” order.
Storing of Cryptocurrency
This is an important step after the purchase of cryptocurrency because you have to keep it in a secure place that is readily accessible when the need arises.
As we all know, Cryptocurrencies are stored in cryptocurrency wallets but what may surprise you is that they are two types of wallets, they include:
- Hot wallet: A hot cryptocurrency wallet refers to storing your coins in a secure online program that also facilitates transactions. Eg: Paypal, Cashapp.
- Cold wallet: In a cold wallet, cryptocurrency is not stored in an online program rather they are stored on tangible off-line devices which makes them easily accessible. Examples of cold wallets are Paper wallets, CDs, and USB wallets.
What are Cryptocurrencies Used For?
Below is a list of what Cryptocurrencies can be used for, they include:
Low-cost money transfers
Cryptocurrency transactions are notable for making high financial transactions with little cost.
A typical example was last year when a transfer of over $90 million Litecoin was made, the receiver received the money in less than 3 minutes and the sender was debited only a meager amount of 40 cents as a transaction fee.
Interest in Yield Farming
These are ways of earning interest in cryptocurrency through Defi lending and crypto staking. It offers interest rates of over 10% yearly with the minimum risk possible.
Decentralized Money Reserve
Cryptocurrency operates without a centralized authority, this makes it impossible for your funds to be seized. When you purchase a cryptocurrency into your crypto wallet be rest assured that you are the only one guaranteed access to it.
Private Transactions
They are cryptocurrencies known as Privacy-centric currencies and they include Monero, Zcash, and PIVX.
What differentiates them from other cryptos is that they can be used to carry out anonymous transactions that cannot be traced back to the sender.
Investment in Tech startup projects
Cryptocurrencies are also used to invest in new-developed cryptocurrencies. For example, when the doge token was developed, people sent bitcoin and Ether in exchange for the potential cryptocurrency.
Enabling of non-cash remittances
New startup companies allow their customers to send non-cash remittances anywhere in the world. An example is the #EndSars movement in Nigeria, when the government was blocking the account of protestors, non-cash remittances were sent from foreign countries using SureRemit.
- They facilitate easy transactions
- They are secure investments to own
- Quick transfers and insubstantial transfer fees
- A high-profit investment
- Untraceable transactions
- Diversification of Portfolio
- Anti-inflation measures
- International transactions
- An uncensorable currency
- A 24/7 all-year market.
Where cryptocurrency is used
Cryptocurrencies can be transacted in the following companies:
- Microsoft
- Overstock
- Tesla
- Home Depot
- Starbucks
- CheapAir
- Destinia
- Namecheap
- Steemit
- Storj
This article has finally come to a conclusion, it is believed that you were sensitized on everything you need to know about cryptocurrency and blockchain technology.
So now, go on and make informed decisions that will positively impact your life.