Understanding Cryptocurrency: A Guide to the Basics

If you haven’t heard of cryptocurrency, then there’s a good chance you have been living under a rock for the past few years. But just because you hear about something doesn’t mean you know what it is or how it works. There is plenty of cryptocurrency news for those interested in learning more, but the information available can get very complicated, very fast.

Many believe cryptocurrency is just beginning to touch the tip of the proverbial iceberg based on current trends and the sheer volume of digital currencies available. And they may be right. Cryptocurrencies provide fast, secure, irreversible, and controlled transactions across the world.

So let’s take a high-level look at what cryptocurrency is, it’s history, it’s usage, and some of the more popular digital currencies on the market today.

What is Cryptocurrency?

If you take away all of the technobabble, cryptocurrency is quite simply a digital asset. Its primary purpose is as a medium of exchange, just like fiat currency, which is what the American dollar is. Digital currency uses cryptography to create, regulate, and secure the transfer of these digital assets.

Cryptocurrency leverages decentralization as its primary appeal. This means no banks and no centralized control of the currency. Digital currencies use blockchain as its ledger. Blockchain, which is not the same as a cryptocurrency, verifies and validates public transactions. The chain locks after confirming the transactions so that no one can alter it.

History

Most people don’t know that cryptocurrency was a result of a different invention. Satoshi Nakamoto created Bitcoin, the most well-known cryptocurrency, in 2009. It utilizes a peer-to-peer network as its system of cash. As mentioned previously, it is decentralized, and it intends to prevent double spending.

The problem was finding a way to agree on the records without a centralized entity. If even one small transaction was not agreed upon, the entire system failed. Nakamoto found the solution to this problem with cryptocurrency. With his invention, we can now use a decentralized authority to achieve consensus.

Uses for Cryptocurrency

There are a variety of uses for cryptocurrency, and you might be surprised to find that they extend beyond the technical realms with which most associate them. Here are just a few of the more popular uses for digital currency in today’s market:

Education

Many schools now accept some cryptocurrencies as a form of payment. Keep in mind, the vast majority of these are universities in Europe. However, the United States is jumping on the bandwagon as well. As cryptocurrency becomes more popular, the number of nations accepting it as payment is only going to continue to grow.

Travel

More and more travel retailers are accepting the digital currency as well. Cheapair is one such retailer, as it allows the use of Bitcoins to purchase cruises, car rentals, flights, and hotels. Also, expect to see cryptocurrency acceptance grow in this sector, as companies realize the benefits of accepting digital currencies as payment.

Real estate

That’s right; you can purchase a house with Bitcoins. There are homes listed throughout the United States at Bitcoin Real Estate, which allows you to view and buy properties with Bitcoins. Whether your ideal location is in Miami, Kansas, or anywhere else in the world, you’ll be able to find a place to call home that you can purchase with cryptocurrency.

Going green

Digital currencies are a part of green initiatives as well. WePower, an environmentally friendly company, provides users a platform to purchase green energy from anywhere on the planet. Information about energy usage is turned into tokens. As a result, this lets you see how much energy consumption and carbon dioxide production is taking place.

Types of Cryptocurrency

Look through any site about cryptocurrency news, and you’re sure to find information about Bitcoin, the most well-known digital currency on the market. But there are many others making noise in the marketplace. Listed here are some of the more popular digital currencies available, and how they impact the world around us.

Bitcoins

Easily the most recognizable cryptocurrency, Bitcoin is now accepted and used throughout the world for many different types of transactions. The main benefit behind Bitcoins is that they carry with them a status that other digital currencies don’t yet have.

Bitcoin aims to show that transactions can be completed without central party involvement, primarily the removal of arbitrary fees often associated with fund transfers. It stores data reliably and provides a viable alternative to traditional banking systems.

To most, Bitcoin and cryptocurrency are synonymous. While that isn’t necessarily the case, as long as the public continues to make that connection, Bitcoin will be the gold standard among digital currencies.

Ethereum

In today’s cryptocurrency market space, Ethereum is the second most popular digital currency, ranking only behind Bitcoin. Entering the market in 2014, Ethereum is a cryptocurrency that fills in some of the gaps identified with Bitcoin.

While Bitcoins are a great place to start if you’re looking to get into cryptocurrency, Ethereum leverages blockchain technology to create smart contracts. As a result, Ethereum provides security in the cloud other digital currencies can’t match. To date, over 100 million contracts have been initiated and completed via Ethereum’s blockchain.

Litecoin

Pile of Litecoin Cryptocurrency

Image: CC BY 2.0, by BTC Keychain, via Flickr

Most commonly known as the silver version of Bitcoin, Litecoin offers a speedier verification and transaction process than its gold counterpart. Since it can authenticate and process transactions at a faster rate than Bitcoin, Litecoin can handle a heavier workload.

Additionally, many investors and traders view Litecoin as a more rational digital currency. This translates to a more sustainable and stable future. However, be wary when considering Litecoin. It has nearly four times as many coins on the market as Bitcoin. This means its value is not as strong in comparison to other digital currencies.

Ripple

In the realm of digital currency, Ripple is the cryptocurrency financial institutions and banks prefer. Where other digital currencies aim to disrupt the current way we complete transactions, Ripple seeks to come alongside banks and create a smoother process for global payments.

The benefit behind Ripple is the ability to have your cake and eat it too. Ripple offers the reliability and stability commonly associated with blockchain transactions. It also cooperates with banks to make sure transactions meet regulations and guidelines. Ripple’s appeal is its ability to provide a plug and play solution for financial institutions eager to enter the blockchain arena.

CoinmarketCap

When considering which coin to invest in, most investors want to know the coin’s valuation, its current market price, how many coins are currently in existence, and how the coin performed in the previous 24 hours. CoinmarketCap provides all this information and more.

Many mistake CoinmarketCap as a cryptocurrency exchange, which it’s not. It’s essentially a resource that helps you identify prices and valuations and identify markets for specific digital currencies. When it comes to providing cryptocurrency-related information, CoinmarketCap is perhaps the most popular site available.

Benefits of Cryptocurrency

Lady Holding Bitcoin Cryptocurrency

Image: CC BY 2.0, by Marco Verch, via Flickr

Many financial experts and cryptocurrency news sites predict cryptocurrency as the next step in the evolution of finance and global transactions. Blockchain technology allows for close monitoring of cryptocurrencies and their transactions. Consequently, this offers a secure method of initiating and completing financial payments.

Accordingly, the most compelling reason to become involved with digital currencies is the removal of third-party involvement. If you want to buy a car or home, you typically need a third party to oversee the transaction. With privacy in mind, cryptocurrency eliminates that need and offers a decentralized method with which to complete financial transactions.

Additionally, these transactions can occur at any time and any place throughout the world, in any country. You no longer have to worry about converting your money, so local retailers accept it. Cryptocurrency frees you from that obligation since buyers and sellers accept the currency throughout the world. Therefore, by using digital currency, you bypass the fees associated with currency conversion.

On the Rise

Many people think cryptocurrency is just a fad that will fade away before it gains much more traction in the market. The reality is that digital currencies and assets are here to stay. Not to mention, we see an increasing number of use cases for these currencies in the real world. This is because more and more industries are investing in cryptocurrencies.

The market for digital currencies can be volatile and unpredictable. However, companies are leveraging blockchain technology to integrate cryptocurrencies into their system. It’s important to realize that the future will expose more uses for digital currencies, some of which we can’t even begin to imagine. It’s safe to say when it comes to cryptocurrencies; its actual value is only just starting to reveal itself.

 

Feature Image: CC BY 2.0, by Stock Catalog, via Flickr

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