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What is Cryptocurrency?
A new revolutionary wave hit the world of finance in the year 2009 when the very first virtual asset was launched by a pseudonymous identity called Satoshi Nakamoto. Bitcoin, a name everybody knows now, was the first cryptocurrency that changed the whole scenario of how people manage their money.
Cryptocurrencies are digital assets acting as an alternative to fiat currencies for over a decade now. The primary problem that the virtual assets have solved is the dependence on an intermediary for verifying and confirming your transactions.
They facilitate peer-to-peer, borderless transactions and smart contracts on the web in a decentralized way and solve the double-spend problem. Cryptocurrencies transactions are purely digital entries and are recorded on a public ledger called Blockchains.
Features of Cryptocurrencies:
- Third-Party elimination: Because cryptocurrencies do not involve an intermediary, the transactions are faster than traditional finance systems.
- Borderless: The transactions via cryptocurrency are entirely based on the technology which reaches and connects the world. One of the vital advantages of cryptocurrencies is that it allows borderless transactions.
- Privacy: There is no need to attach personal names or identifying information to the transactions. Although, the transactions are recorded on a public ledger, and the addresses are known.
- Double-spend: Cryptocurrencies eliminate the problem of double-spending, and the transactions are irreversible.
- Peer-to-Peer: It facilitates transactions between two parties directly without the requirement of a third party like a credit card or a bank.
How does cryptocurrency work?
Cryptocurrencies get this name from the fact that they use encryption to verify the transactions. Advanced coding is utilized in transmitting and storing data between wallets and public ledgers. A public ledger called Blockchain is where the cryptocurrencies operate and where all the transactions are held and updated.
Mining
Cryptocurrencies are entered into circulation through a process called mining. It allows the introduction of new cryptocurrency units, for instance, Bitcoin. It is through mining that the transactions are confirmed on the network. It is critical for the maintenance and development of blockchain ledgers. The process to amend the shared ledger with a newly added transaction in which all the core supporters coincide the copies is what we call cryptocurrency mining. These supporters are known as miners.
Blockchain technology
Blockchain is the driving source for the crypto industry. As the name suggests, blockchains are a set of connected blocks or an online ledger. Every block consists of a set of transactions that each network member independently verifies. Every miner takes the number of transactions submitted by users in around ten minutes and creates a block. They compute the data from the transactions in the block to find the value designated. The miner who finds the value first contributes to adding the block on the ledger (the next block). And every other miner would synchronize their copy of the ledger to include it. This process takes place every time a miner wins. Hence, the name blockchain.
Blockchain technology can be used in varied industries like supply chain, healthcare, insurance, etc.
Cryptography
Cryptography is the primary concept behind making crypto industry transactions and blockchains secure. Cryptography codes are also known as Hashes which link the blocks together. Hashes are like secured passwords which are nearly impossible for hackers to guess.
Digital Signatures
The network of cryptocurrencies utilizes Digital signatures to facilitate transactions via cryptocurrency. The recipient provides his public key to the sender, whose private key signs a transaction and assigns the asset to the former party’s public key. Providing the users with a public and a private key ensures their holdings are safe and gives you ownership.
Various Utilisations of Cryptocurrencies:
Stablecoins: Because many crypto critics focus on concerns related to price volatility. Stablecoins were introduced to offer price stability. They are popular because they comprise the merits of both kinds of currencies. Non-volatile nature from the traditional currencies and quick payments without the need of an intermediary from the cryptocurrencies. Stablecoins can be varied types like Fiat collateralized, Crypto collateralized, and Non-collateralised. Usually, coins like Tether (USDT), USDC, etc., are pegged by the US Dollar.
Staking: Some cryptocurrencies offer their investors to earn passive income via the process called staking. It can be done via certain cryptocurrencies which use the Proof-of-Stake mechanism. Staking can be done through a crypto exchange like Binance, Coinbase, Kraken, etc. Another way is to set up your staking node, which involves thorough skills, knowledge, and expertise. Some of the popular cryptocurrencies that you can choose for staking are Solana (SOL), Cardano (ADA), Polkadot (DOT), Ethereum 2.0 (ETH), Terra (LUNA), etc.
Purchase and Investments: Cryptocurrencies are popularly used for purchasing goods and services online. Because the crypto industry is highly volatile, they are also used for investments where the users buy some amount at one value and sell it when the value increases. Some cryptocurrencies for choosing to invest in are Ethereum (ETH), Decentraland (MANA), Cardano (ADA), Ripple (XRP), Shiba Inu (SHIB), etc.
DeFi Lending: Certain platforms like Aave, Maker, Compound, etc. that focus on offering crypto loans in a trustless way. It allows users to enlist their crypto assets on the platform for lending purposes. DeFi platforms have a significant lending growth rate and significantly contribute to locking crypto assets.
The crypto industry has been growing massively recently, with more and more coins and tokens introduced almost every other day, with a current overall market cap of around $1 trillion. And more and more concepts like Metaverse, NFTs, DeFi, Web 3 are helping the industry grow by leaps and bounds.
