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What is Cryptocurrency? Cryptocurrency is a type of digital currency that is most often decentralized. Its mission is based on various cryptographic methods, while blockchain provides its technological fundament.

In simple words, a blockchain is a digital ledger that can store different kinds of information. In the case of crypto, blockchain is responsible for storing all the monetary transaction data. The volume of these ‘blocks’ grows as new transactions are made.

Blockchain technology has its roots in cryptography, a science of ensuring the secrecy of communication between the sender and recipient.

How does Cryptocurrency Work?

Since cryptocurrency is a unit of accounting for transactions within a decentralized payment system, its work resembles banking systems very much.

Nowadays, nearly everyone is accustomed to transferring money and making purchases or sales with the help of banks. They are centralized – information about all transactions is in one’s hands. The bank confirms the fact of transferring money from one account to another. This operation cannot be carried out twice or pretend that it did not happen since the bank is responsible for its confirmation and security. For their work, banks charge commissions from customers and dictate their terms for using financial products.

Cryptocurrency works similarly, but there is no single center. While transaction information is stored on thousands of computers worldwide, it is combined into blocks, then blocks into chains protected by cryptographic keys. The entire chain will change if you change the information in any of the blocks.

This technology is called a blockchain. Blockchain is formed continuously with the advent of data on new operations. Processing transactions on the blockchain and selecting keys for encryption require computing power and effort. For this work, the people who do it are rewarded.

The unit of this reward is the coin or its fraction – Bitcoin, Litecoin, Ethereum, or any other. This is how cryptocurrency mining works.

In simple words, mining is the process of sealing blocks in the blockchain, which supports the existence of the payment system and the cryptocurrency itself.

States or central banks do not control cryptocurrency. It makes transaction processing independent, transparent to all participants in the network of computers included in the blockchain, and at the same time, anonymous. The legal status of these transactions in many countries has been re-examined in the last few years.

What is Cryptocurrency Used for?

The first cryptocurrency, Bitcoin, was only used as a means of payment. However, today we can utilize crypto in many other ways:

Payment

Cryptocurrency, like regular fiat currency, is a payment instrument. It can be used to pay for goods and services. Already today, many companies accept bitcoins and other popular tokens for payment.

Bank Alternative

Blockchains allow you to process transactions quickly and without fees. Many modern cryptocurrencies’ speeds are close to or exceed those of traditional payment systems, such as VISA and Mastercard.

In simple terms, crypto conducts financial transactions quickly, without intermediaries, and anonymously.

Native Currency

Cryptocurrencies can be utilized as tokens of blockchain projects, decentralized finance, applications, games, and so on. It can be both an internal unit of account of such a network and a way to develop the project and attract new resources.

For example, one of the most popular blockchains, Ethereum, has formed an extensive network that serves p2p exchanges, OTC markets, and DEXs. The easiest is leveraging crypto exchanges (online markets where virtual coins are sold). Let’s choose Binance as an example.

2. Register

Create an account and deposit the amount you want to spend. Binance may ask you to pass KYC (Know Your Customer) verification before topping up your balance. Also, you can choose to buy directly with your credit card.

3. Choose crypto

Binance offers more than 600 crypto tokens for sale, but the most popular ones are BTC, ETH, and BNB. You can buy any of them.

4. Place an order

Click on “buy” and enter the sum you are willing to convert or the exact number of coins you want to buy. Then confirm the deal.

5. Check your portfolio

After doing all this, you can find your purchase in your spot wallet.

Is Cryptocurrency a Good Investment?

Cryptocurrency is still a young financial market that has yet to show its full potential. So the short answer is yes. But be careful!

Let’s take the opinion of Wells Fargo (an American banking giant and global financial services provider that manages approximately $1.9 trillion in assets) as an example. In February 2022, they released the report Cryptocurrencies — Too early or too late?

Their main idea is that the crypto market’s evolution now is something like the development of the Internet in the late 90s. Investing in crypto assets today is already “not too early” but “still not too late.”

Wells Fargo thinks this activity can still bring us some profit in the future. The number of cryptocurrency users is growing dynamically all over the world. Crypto assets are approaching the phase of “hyper-acceptance” — they are on the verge of mass adoption when they are no longer perceived as an exotic and risky financial instrument.

Is Cryptocurrency Safe?

If you choose a reliable crypto project, your coins will probably be safe (unless the company disappears the day you make the purchase).

Moreover, dealing with cryptocurrencies doesn’t mean you are in the ‘darknet’ zone. This is just an alternative to the traditional financial system. Also, most cryptos are secured in several ways.

What about the money invested in a particular coin? Well, unfortunately, the crypto market is highly volatile. Here you can lose 10% in value today and gain 300% the day after.

Hence investing in crypto implies additional risks to the value of your fiat savings.

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