What is Cryptocurrency?
Cryptocurrency is a type of currency that exists only digitally and that is secured by advanced encryption. Most cryptocurrencies also run on blockchain technology. Blockchain technology is essentially a decentralized ledger that is maintained and enforced by a decentralized network of computers. The combination of advanced encryption and blockchain technology makes it impossible to counterfeit or double-spend cryptocurrencies.
Cryptocurrencies are governed by the rules of the underlying software that was used to create them. So, generally speaking, the creator of a cryptocurrency makes the initial decisions about things such as what the supply cap of the cryptocurrency will be, how new coins will be minted, etc.
Cryptocurrencies are an alternative to government-issued fiat currencies which are under the complete control of governments and central banks. The fact that cryptocurrencies are outside of the control of governments makes them attractive to people who prefer currencies that cannot be easily manipulated or inflated by governments.
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Key Takeaways
- Cryptocurrency is a digital currency that is secured through advanced encryption technology.
- There are tens of thousands of cryptocurrencies, but most popular and best-known cryptocurrencies are Bitcoin and Ethereum.
- Most cryptocurrencies run on blockchain technology, which is essentially a distributed ledger that is maintained by a decentralized network of computers.
- People use cryptocurrencies primarily as a means of exchange, as a store of value, as investment vehicles, and as alternatives to their national currencies.
Who Invented Cryptocurrency?
The first modern blockchain-based cryptocurrency was invented by an entity known as “Satoshi Nakamoto.” No one knows the true identity of Satoshi Nakamoto because this name is a pseudonym. Satoshi Nakamoto chose to remain anonymous when he/she/it released the first cryptocurrency, Bitcoin, to the world on January 3rd, 2009.
How Many Cryptocurrencies are There?
The number of cryptocurrencies in existence grows every year. As of May, 2022, there are over 19,000 cryptocurrencies.
What are the Most Popular Cryptocurrencies?
What is the Point of Cryptocurrency?
Cryptocurrency is being used for a number of purposes currently. For example, some people are using it as a means of exchange in order to buy and sell goods and services. Other people are using certain cryptocurrencies like Bitcoin as a store of value and as an inflation hedge. Many people are also using cryptocurrencies as investment vehicles because the value of many (though not all) cryptocurrencies tends to increase significantly over time.
The reason why some people are using cryptocurrencies like Bitcoin as a store of value and as an inflation hedge is because unlike fiat currencies, there is a finite amount of Bitcoin. In fact, there are only 21 million Bitcoins total. Because Bitcoin has a hard cap on its supply and because fewer Bitcoins are minted over time, it makes Bitcoin a “deflationary” currency. This is the opposite of an inflationary currency, which most fiat currencies are. Inflationary currencies can be printed endlessly and do not have a hard cap on their supply.
How To Buy Cryptocurrencies?
The easiest way to buy cryptocurrencies is to create an account on a cryptocurrency exchange. Once you have created an account on a cryptocurrency exchange, you can deposit fiat currency and then exchange it for cryptocurrency. Coinmama.com is an example of a cryptocurrency exchange that you can use to buy and sell cryptocurrency.
Is Cryptocurrency Legal?
The legality of cryptocurrencies varies from country to country. Some countries have outright banned them and made them illegal. For example, cryptocurrency is illegal in China, Egypt, Iraq, Qatar, Oman, Morocco, Algeria, Tunisia, Bangladesh, and Bolivia. However, cryptocurrencies are legal in the vast majority of other countries. One nation, El Salvador has even made Bitcoin legal tender.
Many countries such as the United States classify cryptocurrencies as “property,” making them subject to capital gains taxes.
Can You Create Your Own Cryptocurrencies?
Yes, it is possible for anyone to create their own cryptocurrency. However, creating a cryptocurrency requires a certain amount of computer programming skill. It is for this reason that most of the people who create cryptocurrencies are skilled coders, developers, or software engineers.
It is also possible to generate new units of existing cryptocurrencies through a process called “mining.” Mining is a process in which a person participates in the validation of transactions for a given cryptocurrency network and is rewarded by the network in the form of brand-new units of the cryptocurrency. Cryptocurrency mining has become a billion-dollar industry.
Why is Cryptocurrency Important?
There are many reasons why cryptocurrency is important. The first is because it has become a completely new asset class. The second is because for the first time in history, it has given individuals the power to create their own currencies that can actually compete with government-issued fiat currencies.
The third reason is because some cryptocurrencies have the power to act as true inflation hedges thanks to their scarcity. Fourth, cryptocurrencies are truly peer-to-peer and can be sent around the world in a matter of minutes or even seconds for some cryptocurrencies without requiring the assistance of a trusted third-party such as a bank to fulfill the transaction.
Essentially, cryptocurrencies are ending the government monopoly on currency and they are giving people a way to protect themselves from the effects of inflation and hyperinflation that regularly occur with government-issued fiat currencies.
Governments have a way of printing money excessively, which tends to erode the purchasing power of their currencies over time. But with cryptocurrencies, governments do not have the power to print them endlessly. Some countries have actually launched their own cryptocurrencies, known as “central bank digital currencies (CBDCs).” For CBDCs, governments can control the supply. However, CBDCs are different from decentralized cryptocurrencies like Bitcoin which are not controlled by any one entity.
What Else Should I Know About Cryptocurrencies?
It is very important to understand that the entire cryptocurrency industry is still relatively new. This means that the industry is still defining itself and there is still a significant amount of risk and uncertainty in this industry. In this way, it is similar to the early days of the internet. There is also still a lot of volatility in the cryptocurrency market. So, if you decide to purchase cryptocurrencies, you should always proceed with caution.
It is true that some people have made fortunes by investing in cryptocurrencies, but the volatility can also result in money being lost. The bottom line is that cryptocurrency is a very exciting new niche that combines finance and technology in a very interesting way. There is plenty of opportunity for investors, savers, tech enthusiasts, and entrepreneurs to benefit from the cryptocurrency industry. However, caution should still be taken.
