Cryptocurrency is a decentralized digital currency that uses cryptographic algorithms and a blockchain protocol to ensure the reliability and traceability of transactions. They are entirely virtual and are stored in a digital wallet protected by a secret code or random word phrase belonging to its owner.
Cryptocurrencies work independently of a central bank or government and have a real existence since they are used on the internet. Web 3.0 for example is one of the recent crypto and blockchain-related developments, and as the internet evolves, there will always be an increase in cryptocurrencies adoption.
Cryptocurrencies have the potential to allow global social and economic progress, even in undeveloped countries, through facilitating access to finance and financial services.
Five of the Popular Cryptocurrencies?
Bitcoin was the first cryptocurrency developed in 2008 on Blockchain protocol by an anonymous entity known as Satoshi Nakamoto and since then, technology has since taken on a life of its own, with interest coming from many quarters. Presently, there are over 10,000 coins as of 2022.
Vitalik Buterin developed Ethereum in 2013 and it became live on July 30, 2015. It is currently divided into two blockchains: Ethereum and Ethereum Classic. It has a block time of 14 to 15 seconds.
On October 13, 2011, Litecoin went live. The goal is to execute a block of transactions every 2.5 minutes, rather than every 10 minutes like Bitcoin, which will enable substantially faster transaction confirmation.
Cardano is a public blockchain platform developed in 2015 by Charles Hoskinson, co-founder of Ethereum. It is the biggest cryptocurrency to employ a proof-of-stake blockchain, which is viewed as a more environmentally friendly alternative to proof-of-work protocols. With its inbuilt coin, it can allow peer-to-peer transactions.
Chris Larsen and Jed McCaleb co-founded Ripple and launched in 2012. Ripple is a financial technology that serves as crypto as well as a digital payment network. Ripple, unlike bitcoin and other cryptocurrencies, is not mined, and transactions are facilitated through a "centralized" blockchain to improve reliability and speed.
How Does Cryptocurrency Work?
To understand how cryptocurrency works, it is essential to explain some terminologies such as proof of work, proof of stake, and the purchase of coins.
Proof of Work
Proof of Work (PoW) is otherwise known as mining. Bitcoin invented the mining or proof of work principle. Computer scientists called miners design and improve algorithms that secure the blockchain by verifying transactions, and they are rewarded with virtual monetary units.
Proof of Stake
The investors in the Proof of Stake (PoS) consensus are compensated for their validation efforts and the amount of coin or token they stake in the network. The substantial rewards that the operators or investors earn present themselves as an ideal investment solution that provides an opportunity for high returns of investment.
Without participating in proof of work or proof of stake, it is still possible to buy cryptocurrency. However, buying crypto assets is risky but also extremely profitable when mastered. Therefore, it’s advisable to learn the best way to invest and trade.
Now, since we have briefly explained the examples of cryptocurrency and how you can invest in them, let's talk about why people are investing in crypto, hammering on the importance of Cryptocurrency in today's world.
Cryptocurrency as a form of payment for goods and services
Cryptocurrencies, like any other currency, allow for the purchase of goods and services. However, it is more difficult today to carry out a daily transaction with cryptocurrency than with the currency that is currently in the country where you live. Cryptocurrencies could ultimately lower the cost of a digital transaction and it's now adopted by most of the giant companies. Also, the crypto world is been developed daily with new technology to ensure an easy purchase of almost all commodities which makes it possible to envisage certain and rapid democratization of the virtual currencies that will be offered by several other companies.
There’s no doubt that in the nearest future, electronic payment based on the cryptographic proof will be the norm.
Cryptocurrency as a financial asset for investing
Cryptocurrencies must find their balance between means of payment and financial assets. Because it is indeed an asset on which investors have positioned themselves en masse in recent years. For many people who have flocked to these new kinds of financial assets, crypto-currencies are above all a potentially profitable investment.
What is obvious is that digital alternative currencies might represent a new type of investment while taking part in the new digital economy. It is popular to classify cryptocurrencies as miscellaneous items and other unusual investments. This typology is important in that it encourages care and investing just a small portion of one's resources in such assets.
Cryptocurrency staking for regular income
Some cryptocurrencies also make it possible to generate income by simply holding them. This is for example the case of Decred (DCR), Cosmos (ATOM), Tezos (XTZ), or Algorand (ALGO). In exchange for holding locked tokens used to validate transactions, the individual investor who holds them receives rewards (most often interest, or even compensation in tokens).
The interest for staking crypto is twofold: on one hand, this practice allows better security of the exchange network and a reduction in Blockchain energy consumption; on the other hand, holding the token in question causes a scarcity of supply and a rise in price.
Stablecoin: cryptocurrency as an investment medium on a given underlying
Stablecoins can help you in securing your crypto capital gains without being taxed. Indeed, rather of recovering your earnings in any country's currency, you may convert a capital gain in cryptocurrency (such as Bitcoin) into a stable coin. Capital gains realized during activities involving the conversion of your crypto-currencies into a country's currency are now taxed at a flat rate. You are not taxed if you leave it s stablecoin on the Blockchain. This method, which is well-known among experienced active investors, allows for the delay and reduction of taxation.
Crowdfunding crypto-equity: another importance of cryptocurrency
Cryptocurrencies also serve another more specialized but equally vital function: project finance through crowdfunding. You might be wondering what a cryptocurrency ICO is. It is nothing more nor less than cryptocurrency fundraising.
Cryptocurrencies may, in fact, be used to finance businesses through crypto-equity crowdfunding. The approach, which has been widely developed since 2014, consists of leveraging cryptocurrencies to finance equity crowdfunding. This is referred to as an ICO, or Initial Coin Offering.
Cryptocurrency has low transaction costs
Because cryptocurrencies and blockchain do not require a physical location, the expenses associated with their transactions are negligible. Because there are no staff wages, power expenses, or rent to pay, these savings automatically translate into minimal transaction fees. As a result, more and more individuals begin to trust these new financial instruments and conduct transactions, allowing the global economy to become increasingly interwoven.
There are now several applications and tools that make it easier to utilize cryptocurrencies and bring them to a broader audience. Another advantage of using cryptocurrency is that it is decentralized, allowing for unfettered cross-border transactions. The use of this technology will create a financial revolution in which everyone will be more financially connected, empowered, and able to perform transactions at a cheap cost. And, depending on the crypto wallet you choose to manage your crypto, you may have access to a lot of beneficial features, such as those provided by coin.space, for example.
Cryptocurrency helps increase the transparency of transactions
Because blockchain and cryptocurrency transactions are automated and digital, they are all recorded on a distributed ledger. The best part is that it cannot be controlled by individuals or corporations, which significantly decreases the risk of fraud and corruption. As a result, emerging countries have a higher chance of breaking into the financial transaction business and improving their economic and social prospects. There's even more. Citizens will be able to see where government financing is going and so have a say in their local political environment.
Cryptocurrency has undoubtedly made its way into our lives, changing them for the better, and its effect is growing at a rapid pace. The rate at which cryptocurrencies are gaining traction is a clear sign that traditional financial institutions can no longer hold the fort as successfully as they once did, and that alternative financial demands are emerging that must be met. Because of the incredible possibilities that cryptocurrencies bring to the table, millions of individuals will now be able to invest, move money across borders, save money, and establish a business.