What is Cryptocurrency, How Does it Work and Why Do We Use It?

You might have heard of Bitcoin. It is a digital currency that was created in 2009 by an anonymous person using the alias Satoshi Nakamoto. So what exactly is a Bitcoin?

It allows you to make transactions without a middleman – meaning you have full control over your transactions. Along with Bitcoin, however, there are many other cryptocurrencies available. 

The Basics of Cryptocurrency

For years, people have traded assets for goods.  Today, those assets are mostly currencies – normally printed bills or coins. The currencies circulating today are all administered by centralized authorities such as governments or central banks.

The launch of Bitcoin, however, partially changed how the world viewed money. For example;

What if currency were monitored and regulated by math rather than by governments?

There are several types of cryptocurrencies with many functions. Besides these features, these cryptocurrencies are supported by a decentralized network, called the blockchain.

Blockchain technology assures that all cryptocurrencies are kept in track, regardless if they are being held in a digital wallet or used for trading. Of course, running any type of system like this requires an infrastructure that makes sure that no one is trying to game the system. 

For example, Bitcoin was the first cryptocurrency to market, creating a system where the peer-to-peer network, so the sender and the receiver of tokens/coins, must create a digital signature to sign off on these payments.

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What Are the Most Popular Cryptocurrencies?

Cryptocurrencies have changed the world’s expectations surrounding money. They have also evolved incrementally since the first Bitcoin block was mined in early 2009.

Since then, many other cryptocurrencies have started to gain popularity and recognition in the world. Despite the thousand different cryptocurrencies available, Bitcoin still remains the most popular.

So what is the reasoning behind Bitcoin’s immense popularity compared to other cryptocurrencies in the world? But first, let’s find out what cryptocurrencies are.

What are Cryptocurrencies?

Before we delve into the most popular cryptocurrencies in the market, let’s step back and briefly define these terms like cryptocurrency.

A cryptocurrency is usually something seen as intangible, also known as digital ‘coins’. While some cryptocurrencies have ventured into the physical realm with credit cards or other forms of payments, the large majority still remains digitized.

Let’s break down the word ‘cryptocurrencies’ to help you understand this term further. It certainly does sound futuristic to most, and many fail to grasp the significance of this term.

The “crypto” refers to the general encryption algorithm used in the generation of the currencies. Cryptocurrencies are almost always designed as an independent entity from the control of the government, which makes it far more credible.

So now since we’ve explained the basics of cryptocurrencies, let’s delve into a list of the most popular cryptocurrencies in the market today.

1. Bitcoin (BTC)

It has been around a decade since Bitcoin gained popularity on the Internet.

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Using Cryptocurrency

Being a digital currency, cryptocurrency is technical in nature and needs to have strong security characteristics. They can be interchanged between two parties directly using a set of private and public keys, similar to the way encryption works.

The interesting thing about these exchanges is that since they are not under the purview of traditional financial institutions, the fees involved to facilitate the exchange are usually quite minimal comparatively.

1. Sign up for a Digital Cryptocurrency Wallet

To use a cryptocurrency, you need to own some first but even before that you need a means to store them. Sign up for a digital wallet, then look for an exchange willing to accept the purchase of your desired cryptocurrency.

Some digital wallets include:

2. Buy Your Cryptocurrency

Once you’ve gotten your wallet, you need to buy some cryptocurrency. Wallets like Coinbase allow you to purchase them via their service as well, so that’s convenient for new users. The digital wallet acts like any other virtual payment method (think Google Pay or Apple Pay), except that it facilitates payments in cryptocurrency.

3. Find a Vendor Who Accepts Cryptocurrency Payments

Vendors willing to accept cryptocurrencies will list them under payment methods

When you’ve gotten your wallet and cryptocurrency,

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Introduction to Cryptocurrency

Cryptocurrency is a form of virtual currency. These Internet-based forms of currency have real-world value equivalents but do not belong to any sovereign nations. Like fiat currencies, their value depends on many factors including demand.

The biggest value seen by users of cryptocurrencies is that they are not (in many cases) regulated by any one country. This gives their users a high degree of anonymity and immunity from general acts of currency manipulation that some fiat currencies are open to.

The Cryptocurrency Ecosystem

Much like how real-word currency is circulated and utilized, cryptocurrency is similar in many ways. For example, you need to either buy or earn cryptocurrency then store it in a digital wallet.

To use cryptocurrency you will need to find a vendor who is willing to accept the currency you have. To get an idea of this scenario, imagine you currently have US dollars. While overseas, some vendors may accept that, but others will want you to convert to a currency they accept.

As a broad overview, the ecosystem consists of:

Miners – These are the ones who invest in the hardware and tools needed to produce cryptocurrency. The process is time consuming and drains much resources.

Buyers/Sellers – These are the largest groups of cryptocurrency users. They use real money to buy or sell cryptocurrency, giving them real value.

Exchanges – Similar to banks, these digital entities allow users to trade cryptocurrencies. Here, you can either exchange one cryptocurrency for another,

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