What is cryptocurrency and how does it work?

Cryptocurrency or simply crypto is referred to decentralized digital money which is based on blockchain technology. The most important and famous ones are Bitcoin and Ethereum and there are more than 5000 cryptocurrencies. Decentralized means that there is no central issuing or regulating authority and a system is applied to record transactions and issue new units.

Cryptocurrency is a digital system that is used for digital payments. However, it doesn’t rely on banks and banking systems which means there is verification need for transactions. It’s a peer-to-peer system and there is intermediary in transactions. The digital asset defined in this system has no physical entity similar to money and in contrast cryptocurrency payments exist purely as digital entries to an online database describing specific transactions.  

How Does Cryptocurrency Work?

Cryptocurrencies run on a distributed public ledger called blockchain on which a record of all transactions updated and held by currency holders. The process in which units of cryptocurrency are created is called mining and it involves computer power to solve complicated mathematical problems which result in generating coins. Apart from that, users can purchase the cryptos from miners and brokers and save them on their wallets. What is important is that no tangible entity exists and everything is digitalized.

Crypto can be used to buy ordinary goods and services. It is also considered as an investment like stocks and shares. It’s a new phenomenon and it can be risky to invest, so, it needs studies to be understood totally.

How to store cryptocurrency

Once the crypto is purchased, it must be stored and for this there are different options:

  • Hot Wallet
  • Cold Wallet

Four tips to invest in cryptocurrency safely

  • Know how to store your digital currency: It is crucial to choose a secure wallet. It can be either an exchange, a digital wallet, etc.
  • Diversify your investments: Try to distribute your assets in different cryptos, so you won’t lose your money easily.
  • Research exchanges: Before choosing an exchange, consider all their pros and cons.
  • Prepare for volatility: Be always ready for ups and downs. There are always swings in prices.

Leave a Reply

Your email address will not be published. Required fields are marked *