What is cryptocurrency? How it works | Financial Greedy

What is cryptocurrency?

Cryptocurrency is a digital asset that can be used for trading or as a virtual form of payment. It used cartography to keep the processes secure, which involve generating units, conducting transactions, and verifying the transfer of currency ownership.

Modern currencies are usually referred to as fiat currencies,” which are secured and regulated by government entities. For example, the U.S. dollar is a fiat currency, while cryptocurrency is not issued by any government authorities.

Crypto gained its name from combining cartography and currency. In the centre of every crypto is an algorithm that has complex encryption.

A crypto is generated after the completion of a piece of a cryptographic algorithm in a long chain. It is not a physical asset like paper currency or coins but a mathematical, computerised equation.

Digital assets like cryptocurrencies are usually stored in digital wallets to keep track of them.

How does it work?

Cryptocurrency doesn’t come under the authority of any government. Theoretically, it works outside any kind of banking system and under the names of different brands or coins, like the most famous Bitcoin.

The working system of cryptocurrencies is a bit different from other kinds of investments like stocks or real estate. There are three steps in the whole process of cryptocurrency:

1: Mining

The creation of virtual cash occurs through a process called ‘mining’. It is a very complicated process. Initially, the coins are mined after solving some mathematical puzzles using special computer systems.

Ideally, the mining takes place in 10 minutes, but the real estimated time is around 30 days.

2: Busing, Selling, and Storing

The purchase and sale of cryptocurrency can be done through central exchanges, brokers, or individual currency owners. The transaction can take place on platforms like Coinbase.

After the transaction, cryptocurrency can be transferred to a digital wallet. There are two types of wallets: “hot’ and ‘cold’. Hot wallets are easy to transact with but open to risks like theft as they are connected to the internet, while cold wallets are much safer but difficult to transact with.

3: Investing

The transfer of crypto coins is very easy with the use of mobile. After you own the coins, the way you use them depends on you. They can be:

1: Used for the purchase of goods or services

2: Exchange for cash

3: Exchange with other cryptocurrencies

Advantages and disadvantages

In the last decade, crypto has gained popularity faster than any other kind of investment, and the result has satisfied investors. But there are both advantages and disadvantages to investing in digital assets.

Advantages

Cryptocurrency stands for a new, decentralised symbol for money. This system doesn’t require any government intermediaries like banks and monetary institutions to enforce transactions between buyer and seller. Thus, a system with digital assets like cryptocurrency eliminates the chance of a single failure.

Crypto promised to make transferring funds between two parties much easier without the need for a third party like a bank or credit card company. Such transactions are protected by public and private keys.

As there are no third parties in between the transfers, the transaction becomes much faster than normal trading, which makes it much easier for both parties. Flash loans in finance are a great example of decentralised transfers. Loans, which are processed without the use of collateral, will be executed in seconds and will be used in trading.

Digital asset investments can generate income. Over the last decade, the value of cryptocurrency has skyrocketed and reached almost $2 trillion. At the beginning of this year, the Bitcoin market reached a value of more than $450 billion.

Disadvantages

Investments in crypto can be profitable, but they also have some downsides.

Although crypto transactions are considered anonymous, they still leave a trail behind that can be decoded by the FBI. It means that interference from government authorities can occur.

Due to a lack of rules and regulations, there are major drawbacks to the trading of digital assets. The non-refund or cancellation policy is a default stance for trading that is done on accident.

Publicly traded digital assets suffer from price volatility. For example, there have been constant surges and falls in the price of bitcoin. In November 2021, the price rose to $65,000, and after a year, it fell to $20,000.

The popularity of cryptocurrency has rocketed with investors, along with criminals for illegal acts like money laundering and others. There were even some cases where a marketplace to sell drugs was run on the dark web.

Is crypto market manipulation illegal? Methods and Measures

Risks of using cryptocurrency

Although there are many merits and demerits, there are some high-level risks in the investment of cryptocurrency, such as:

1: No legal protections

Other payment options like credit and debit cards provide legal protection in case anything bad occurs, whereas digital assets like crypto do not provide such a facility.

2: Transactions Are Not Reversible

The payment with virtual cash can only be successful if the person you paid sends it back.

3: Information Will Be Public

Although it is believed by investors that cryptocurrency exchanges are anonymous, the reality is different. The digital asset transactions are typically recorded on a ledger called a blockchain. That’s the public list where both the received and paid sides are recorded. The data that is included in the block chain includes the transaction amount as well as the wallet addresses of both the receipt and payment sides.

Top 5 Trending Cryptocurrencies in 2023

1: Bitcoin (BTC)

• Market capitalization: more than $350 billion

Bitcoin (BTC), the most expensive and popular crypto in the market, was the first coin introduced in the industry in 2009. But it skyrocketed after about a decade, and in 2016, it reached a value of about $500. But after that, lots of ups and downs were seen in the history of Bitcoin. The maximum price it reached was around $68,800, around 59.26% more than the current price of $28,000.

2: Ethereum (ETH)

• Market capitalization: more than $170 billion

Ethereum, the second most well-known digital asset, experienced tremendous growth. Since April 2016 until March 2022 and valued at about $11 to $3,000. But the overall crypto crash resulted in a decline in the price of Ethereum to about $1,852 in April 2023.

3: Tether (USDT)

• Market capitalization: more than $66 billion

Unique from other kinds of digital assets, Tether is a stable coin, meaning it has the backing of modern currencies like the U.S. dollar and euro. This means that the value of Tether is considered to be more stable than other currencies.

4: Binance Coin (BNB)

• Market capitalization: more than $45 billion

Binance Coin is a cryptocurrency that can be used to trade and pay on one of the biggest crypto exchanges, Binance. Since its launch in 2017, Binance has grown beyond just facilitating trades on Binance. At present, it can be used for travel and trading with other coins like Ethereum or Bitcoin.

In 2017, the value of BNB was just $0.10, but by the beginning of March 2023, it had reached an estimated value of $413, a rise of around 410,000%. Even after the overall crash, the price of BNB stayed around $335 at the start of 2023.

5: XRP (XRP)

• Market Capital: More than $18 billion

With the same founder as Ripple, a tech and payment processing company, XRP can be used to facilitate the trading of a variety of fiat currencies.

In 2016, the value of XRP was $0.006, and in March 2023, the price was around $0.36, which is a rise of about 6.000%.

CAN INVESTING IN CRYPTOCURRENCY BE PROFITABLE IN 2023?

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Crypto news alerts | Bitcoin and XRP 2023

Is cryptocurrency regulated?

A common misconception in the investment industry is that the digital asset market is not regulated. In the U.S. alone, many federal agencies and regulators have been set up to issue rules and guidance about the cryptocurrency that falls under their authority.

However, digital asset regulation was not an easy task. This is because the mould of digital assets breaks when it comes to classification. But how did this difficult task of regulation take place, and why is it required?

How Can Cryptocurrency Be Regulated? Why is it needed?

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