What is Cryptocurrency 2024: Find Out Now

Cryptocurrency is a virtual or digital currency that uses cryptography to secure transactions and control the creation of new units. Cryptocurrency is decentralized and not subject to government or financial institution control. Bitcoin, the first and most well-known cryptocurrency, was created in 2009. Digital assets are often traded on many cryptocurrency exchanges and can also be used to purchase goods and services.

The philosophy is that blockchain technology takes power and control out of financial institutions and removes the dependency on fiat currencies that can increase their supply at anytime. This dilution causes physical money to have less purchasing power and value.

What is Cryptocurrency Mining?

Digital currencies are created through a process called mining. Miners confirm crypto transactions and add new blocks to the blockchain, a distributed ledger that records all cryptocurrency transactions. In return for their computing power, miners are awarded new cryptocurrency units. For example, when a Bitcoin miner adds a new block of transactions to the Bitcoin blockchain, they are awarded new bitcoins. In addition, anyone can access the public ledger to verify transactions happening on the network.

What is Bitcoin?

Bitcoin, the most well-known and first cryptocurrency blockchain, was created in 2009 by an anonymous person or group of people using the pseudonym Satoshi Nakamoto. Bitcoin is a decentralized cryptocurrency not subject to government or financial institution control. Bitcoin transactions are verified by network nodes through cryptography and recorded in a dispersed public ledger called a blockchain.

Bitcoin is pseudonymous, meaning that funds are not tied to real-world entities but rather bitcoin addresses. Owners of bitcoin addresses are not explicitly identified either.

Bitcoin is designed to be a deflationary currency, meaning its value will increase over time as the supply of new bitcoins decreases. There will only ever be 21 million bitcoins, and the last bitcoin is estimated to be mined in 2040. Bitcoin’s supply can not be increased like fiat currencies.

There also has been speculation that about 4 to 5 million bitcoins have been lost or not accessible to wallet holders, meaning that the supply is a lot less in circulation. In addition, there is Bitcoin halving which occurs every 4 years. This is when miners will receive half the reward they currently do. The next halving date is on May 2024. As a result, Bitcoin is even more scarce.

What are the Benefits of Bitcoin?

 

• Durability – One of the key benefits of Bitcoin is that it is a very stable currency. Unlike fiat money, which can be subject to inflation and even complete devaluation, Bitcoin is a deflationary currency. In other words, the purchasing power of Bitcoin increases over time as the supply of new bitcoins decreases.
• Portability – Bitcoin is that it is a very portable currency. Unlike physical cash, which can be pretty bulky and difficult to carry around, Bitcoin is digital and can easily be stored on a computer or mobile device.
• Fungibility- Bitcoin is interchangeable with another Bitcoin, and this is in contrast to fiat money, which can be pretty challenging to exchange due to differences in denominations.
• Divisibility – Bitcoin can be divided into smaller units, which can be quite helpful when making purchases.
• Scarcity – Bitcoin is a very scarce currency, and there will only ever be 21 million Bitcoins and the last Bitcoin is estimated to be mined in the year 2040. This scarcity, combined with the increasing demand for Bitcoin, gives it value.
• Recognizability – Unlike some fiat currencies, which can confuse new users, Bitcoin is a well-known currency. This recognition makes it relatively easy to use Bitcoin, even for those unfamiliar with cryptocurrencies.

Are Cryptocurrencies Legal?

The legal status of cryptocurrencies varies by country and is still undefined or changing in many of them. Although some countries have explicitly allowed their use and trade, others have banned or restricted it. Likewise, various government agencies, departments, and courts have classified Bitcoin differently.

China’s Central Bank banned the handling of Bitcoin by financial institutions in China during a swift adoption period in early 2014. The country has gone back and forth regarding the regulation of Bitcoin over the years.

In Russia, though cryptocurrencies are legal, it is illegal to purchase goods with any currency other than the Russian ruble. Regulations and bans that apply to Bitcoin probably extend to similar cryptocurrency systems.

The United States is still going through a thorough review on regulating the cryptocurrency market and even crypto exchanges. The Commodity Futures Trading Commission (CFTC) will have significant oversight of this process and framework for the future.

How Many Digital Currencies Are There?

Based on data from CoinMarketCap, there are over 20,000 digital currencies available. Most of them are not sustainable for the long term and are also centralized projects for the founders to gain wealth at the expense of retail investors. As always, do your homework and due diligence before deploying any capital.

What are ICOs (Initial Coin Offerings)?

ICOs, or initial coin offerings, are a type of crowdfunding using cryptocurrencies. ICOs are used to raise capital for new blockchain projects. Investors receive crypto assets (tokens) in exchange for their investment. ICOs have been around for 5 years, and the Ethereum blockchain set off that wave. It was an unregulated way to raise capital to fund the overhead and growth of a specific cryptocurrency. There are now thousands of virtual currencies, so you need to conduct due diligence on what blockchain network is sustainable, is a truly decentralized system, and has a secure infrastructure.

What are UTXOs?

UTXO stands for unspent transaction output. A UTXO blockchain is a cryptocurrency ledger that keeps track of any unspent cryptocurrency transaction. This lets users know what funds are available to them and prevents double-spending. Bitcoin is the most popular cryptocurrency that is UTXO. Several other cryptocurrencies that are UTXO are Litecoin, DigiByte, and Bitcoin Cash.

What is Proof of Work?

Proof of work (PoW) is a consensus algorithm requiring miners to solve complex computational problems to confirm transactions and add new blocks to the blockchain. Many cryptocurrencies, including Bitcoin, use PoW, and Ethereum plans to move from PoW to Proof of Stake (PoS) in the future.

What is Proof of Stake?

Proof of stake (PoS) is a consensus algorithm that allows users to validate transactions and add new blocks to the blockchain-based on how many coins they hold or their “stake.” PoS is used by several cryptocurrencies, including Qtum and NEO. These assets were created as an alternative to Proof of Work, but there has been some discussion that these assets could be treated as securities.

Centralized vs. Decentralized Cryptocurrency?

The main difference between centralized and decentralized cryptocurrency is who controls the network. With centralized cryptocurrency, a central authority, such as a company or government, owns the network. Decentralized cryptocurrency is not controlled by any central authority and is distributed among all network users.

How Do You Buy Cryptocurrency?

You will need to sign up with one of the many cryptocurrency exchanges and create an account on their platform. Make sure to send traditional currency (fiat) to the exchange. Most crypto exchanges will accept wire transfers to make crypto purchases. Every digital currency you purchase will need a cryptocurrency wallet specific to its blockchain. There is a much more detailed overview of how to buy cryptocurrency here.

How Do You Keep Your Crypto Assets Safe?

You store cryptocurrency in a digital wallet. Most crypto exchanges will have wallets to store your crypto there, but this can be a potential risk. If the exchanges go insolvent or get hacked, your funds could be in jeopardy of being lost or stolen.

The best is to use an offline wallet. Examples of hardware wallets are Trezor, Bitfi, or Ledger. If you still want to have more safety, download the core wallet associated with the digital asset you are purchasing and put it on an isolated computer with no internet access and a virus scanner. You can also encrypt the wallet with a password. Always be sure to remember the password or you won’t be able to access that core wallet. Lastly, you can backup the wallet.dat file to multiple thumb drives to mitigate risk more efficiently.

Wrap Up

Cryptocurrency is an emerging class that is worth paying attention to. There are many assets to select from, but be sure to take time to educate yourself and understand what your risk tolerance is. At the minimum, cryptocurrency is a hedge against fiat currencies and creates financial self-sovereignty. It may be worth diversifying your risk into other non-traditional assets from an investment standpoint.

FAQ:

Is cryptocurrency a stock?

No, cryptocurrency is not a stock, and stock is a type of security that gives the holder ownership of a publicly-traded company. Some investors say activity in the cryptocurrency market is strongly correlated to the stock markets.

Is crypto a risky investment?

Cryptocurrency can be considered a risky investment. The market is highly volatile, and there are many scams in the space. This blog post is not financial advice. Make sure you conduct due diligence on any project before investing.