At its core, a cryptocurrency is typically a form of decentralized digital currency designed for use on the internet. Bitcoin, which launched in 2009, was the first cryptocurrency and remains by far the largest, most influential, and best known. In the last decade, Bitcoin and other cryptocurrencies like Ethereum have become digital alternatives to money issued by governments.
- The most popular cryptocurrencies are Bitcoin, Ethereum, and Litecoin. Other well-known cryptocurrencies include Monero, Ripple, and ZCash. Some are similar to Bitcoin. Others are based on different technologies or have new features that allow them to do more than transfer value.
- Crypto allows value to be transferred online without resorting to an intermediary such as a bank or payment processor, allowing value to be transferred around the world, almost instantly, 24/7, with minimal fees.
- Cryptocurrencies are generally not issued or controlled by any government or other central authority. They are managed by peer-to-peer computer networks running free and open-source software. Usually, anyone who wants to participate is able to do so.
- If a bank or a government is not involved, how is the crypto secure? It’s secure because all transactions are verified by a technology called a blockchain. A cryptocurrency blockchain is similar to a bank’s balance sheet or ledger. Each currency has its own blockchain, which is a continuous and constantly rechecked record of every transaction ever made with that currency.
- Unlike a bank’s ledger, a crypto blockchain is distributed among participants across the digital currency network. No company, country, or third party has control; and anyone can participate. A blockchain is a revolutionary technology recently made possible through decades of computer and mathematical innovations.
What makes cryptocurrency unique
Crypto makes transactions with people on the other side of the planet as easy as paying with cash at your local grocery store.
When paying with cryptocurrency, you don’t need to provide any unnecessary personal information to the merchant. This means that your financial information is protected from sharing with third parties such as banks, payment services, advertisers, and credit rating agencies. And since no sensitive information should be sent over the internet, there is very little risk that your financial information will be compromised or your identity stolen.
Almost all cryptocurrency, including Bitcoin, Ethereum, Litecoin, is secured using a technology called blockchain, which is constantly updated and verified by a huge amount of computing power.
Since your cryptocurrency holdings are not tied to any financial institution or government, they are available to you no matter where in the world you are or what happens to any of the main intermediaries in the system. Truly global control of your funds.
Utility and irreversibility
Unlike a credit card payment, cryptocurrency payments cannot be canceled. For traders, this greatly reduces the likelihood of being defrauded. For customers, it has the potential to make trading cheaper by eliminating one of the main arguments made by credit card companies for their high processing fees.
The network powering Bitcoin has never been hacked. And the fundamental ideas behind cryptocurrencies contribute to their security: The systems are permissionless and the core software is open-source, which means that countless computer scientists and cryptographers have been able to examine all aspects of networks and their security.
What do I need to know to trade cryptocurrency?
A good financial culture certainly comes first. This includes basic knowledge of financial instruments and foreign exchange markets. For starters, it’s a good idea to first know the basic mechanisms of cryptocurrencies, which we covered in this article. It is also good to know how financial markets work. Once you have gained enough knowledge and are confident in it, you can try to invest your own funds. Keep in mind that a huge percentage of retail investors lose money. If you really want to have a real chance to make money from cryptocurrency trading, focus on improving your knowledge. In other words, focus on a proper understanding of the technology itself. Doing so, you can distinguish projects that have some fundamental value, such as Bitcoin or Ethereum, from obvious pyramid schemes, such as OneCoin or Bitconnect.