Cryptocurrency 101: Everything You Need to Know
For centuries, money has been a tangible object, one you could physically hold and trade. Yet thanks to technology’s speedy progress and the internet’s still exploding growth, physical money is becoming increasingly less popular; we pay with credit cards, mobile wallets, even our smartphones and watches.
Digital currency is gaining popularity too. Over the years, there have been many who tried to take our money online. Those efforts failed – until recently. Now, cryptocurrencies are gaining ground.
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However, cryptocurrency is difficult to understand for many people. If you want to join the cryptocurrency craze, but fail to understand what these unique currencies are, you need to learn the basics of this new monetary system.
What is Cryptocurrency?
Put simply, a cryptocurrency is a virtual or digital currency. Similar to tangible forms of money that you can hold in your hand, cryptocurrencies are simply a medium of exchange. The main difference is that cryptocurrencies use web cryptography techniques to secure and validate transactions as they occur. This is also what controls the creation of new units of any given cryptocurrency.
Today’s cryptocurrency system is entirely decentralized and functions like a peer-to-peer file sharing system.
The Different Types of Cryptocurrency
There are currently hundreds of different types of cryptocurrencies – but only a handful are relevant to most people. The following are the primary currencies.
Bitcoin: Bitcoin was the first cryptocurrency to be successfully implemented. Created in 2009, it remains the most widely recognized form of cryptocurrency. Bitcoin paved the way for the development of hundreds of other digital currencies.
Litecoin: Another popular form of digital currency, Litecoin followed directly behind Bitcoin. Since 2011 Litecoin has been a global payment network free of the control and regulations associated with central financing authorities. Litecoin is very similar to Bitcoin, but generally offers a faster confirmation of each transaction.
Ethereum: Ethereum started in 2015. It is also a decentralized platform that can be beneficial for avoiding fraudulent transactions and oversight or interference from third-party organizations.
These three forms of cryptocurrencies are just the tip of the iceberg. Hundreds of other cryptocurrencies exist, and each differs slightly.
How Does Cryptocurrency Differ from Traditional Money?
When most of us think of currency, we picture cash. Cash and coins are put in place and regulated by the government. Whether tangible dollar bills or dollar amounts on a bank account ledger, traditional currencies are backed by a central government agency.
Cryptocurrencies work in an entirely different fashion. Cryptocurrencies are not considered legal tender because they aren’t backed by a centralized government agency. Cryptocurrency transactions are similar to credits and debits that exist online only, free of monitoring or control by any financial institution.
So, the primary difference between traditional money and cryptocurrencies is government backing.
How Is Cryptocurrency Acquired?
Another big different between traditional currency and cryptocurrency is how wealth is acquired. For most people, money is earned via a regular paycheck. But how do you actually get cryptocurrency?
Cryptocurrencies are acquired by simply purchasing them. You just need to create and verify an account with any number of websites that sell specific forms of cryptocurrency. After you verify your account, you’ll be able to create a digital wallet linked to your traditional bank accounts or credit cards. Then you can pay for any amount of digital currency you’d like.
How Reliable Is Cryptocurrency?
Cryptocurrencies are still a relatively new technology. However, they are growing fast. In 2014, Business Insider reported that 2.5 million people had Bitcoin – and today, the Bitcoin Market Journal reports that 20 million people use the cryptocurrency. And many financial professionals and economists feel that the world of cryptocurrency will continue to expand.
Yet this new digital currency isn’t yet as stable as the traditional dollar. Cryptocurrency has seen huge fluctuations in its value in just the last few months alone. It reached an eight-year high of $18,000 per Bitcoin in 2017, according to Consumer Reports, but immediately dropped in price just days later.
How to Get Started With Cryptocurrency
If you’re interested in testing the waters with your first cryptocurrency, all you need to do is purchase a form that suits what you’re looking for. Once you have cryptocurrency, you can treat it just like any other currency: you can shop online, make payments, and even hang onto it as an investment for later trading.
The best way to stay knowledgeable about the latest cryptocurrencies and their values is to do your research. Cryptocurrencies are always changing in one way or another, making it both exciting and revolutionary.