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In recent years, new currencies have gained popularity among investors, traders and consumers. This currency is cryptocurrency and it can be confusing to understand without knowing some key definitions and details. Searching the internet for this currency will quickly lead you to debates about authenticity, classification and associated technologies such as blockchain and NFT, adding to the confusion of the topic.
Estimated reading time: 3 minutes
Cryptocurrency Basics
The main fact you need to know about cryptocurrency is that it is a decentralized digital currency. This means that it is not issued by a government, bank or individual issuer and is generally not backed by fiat currency, gold or silver. Since cryptocurrency is invested and traded by users, it can sometimes be classified as an asset rather than a monetary system. However, this classification does not change the fact that it can be exchanged for goods and services like any other currency. More and more businesses are using popular cryptocurrencies that allow you to exchange euros or US dollars, buy goods and services, and even find a platform to raise cryptocurrency for your business.
Blockchain security
Cryptocurrencies run on blockchain, a distributed ledger technology with cryptographic protocols embedded at each node in a distributed network. Blockchain security is so high that many companies use the same technology to exchange and store information. Every time a piece of data is uploaded to the chain, it gets a new security lock. This block is the last block, timestamp, and cryptographic hash of the transaction data. Exposing a piece of information on a chain exposes it, making each block more secure than it could be on its own.
Cryptocurrency mining
Mining traditional currencies like Bitcoin is harder because as the currency grows, it becomes more complex and requires more computing power. When you mine cryptocurrency, you configure your computer to verify transactions as they travel through the chain, and you're rewarded with coins for that time and effort. This method is how to make new money and in theory anyone can apply it.
Advantages of cryptocurrency
One of the most important advantages of cryptocurrency is its anonymity. Anonymity means more confidence that your assets, wallet and online purchases made with crypt cannot be hacked by you or your person.
Possible pitfalls
One of the most cited risks with cryptocurrency is the primary source of funding for NFTs, or intangible tokens. These symbols represent digital copyrights for original intellectual property works such as art and music. The NFT market is volatile lately, and if the server hosting your tokens is hacked, the anonymity of the cryptocurrency makes it difficult to prove you're the rightful owner of the holdings.
Another risk is that the anonymity of crypto means that losing your crypto wallet login information will lock you up forever. Since there is no recourse for most of these exchanges, setting up your computer to encrypt and forgetting your password is essentially a wasted effort that will cost you a lot of money.
Once seen as a fad, cryptocurrencies have become increasingly popular, with some of the hottest types being accepted by retailers of all shapes and sizes. Navigating this financial system can be confusing because it is sometimes considered a currency and other times an investment or asset. But once you know how the system works, you will see that they can be exchanged for real goods and services and held as an investment or buy NFT.
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Last updated: November 30, 2022
The post What is cryptocurrency and how does it work? First appeared in Teheris.