Cryptocurrency (or crypto) is a new type of money that promises to streamline existing financial architecture and decentralize the global finance system. But what exactly is cryptocurrency, and can it actually achieve its intended benefits?
The most popular form of crypto is Bitcoin. While it was originally developed to be a medium of exchange, the technology behind it now allows people to purchase a growing range of goods and services, from a cup of coffee to a car. Moreover, some people hold crypto as an investment, hoping that its value will rise over time. This is known as the “buy and hold” strategy. The value of your crypto depends on the supply and demand for it. Supply refers to how many coins are available for sale, and demand is a measure of how much people want them. The more people want them, the higher the price will be.
Bitcoin was the first digital currency to become widely used. It was launched in 2009, and the number of people using it has grown steadily ever since. However, its trajectory veered somewhat after launch- it became a favorite conduit for illegal activities. In 2023, Bitcoin and other cryptos can still be used for criminal transactions, but the range of products and services that can be purchased legitimately with them is expanding rapidly.
How Is Crypto Secured?
Crypto is a breakthrough in technological innovation. Its security is based on a public record of transactions called a blockchain. The blockchain is similar to a bank’s ledger, but it is constantly re-verified and updated by all users on the network. The blockchain is not owned by any company or government, and anyone can participate.
The blockchain records the transfer of ownership of cryptocurrencies, as well as other information. It is compiled and verified by users on the network, who are known as miners. Miners are rewarded for their work with newly minted crypto for their contribution to the network. A miner may be a computer program or an individual.
One of the biggest advantages of crypto is its speed. Transactions are logged in a matter of minutes, and the receiving party can spend their funds immediately. By contrast, it can take a day or more for a traditional bank to process a wire transfer.
Another advantage is lower transaction costs. The blockchain that supports crypto eliminates the need for intermediary organizations to verify payments and transfers, allowing people to send and receive cryptocurrency at a fraction of the cost of traditional international remittance services.
Unlike opening a bank account, which requires several layers of identification and documentation, setting up a crypto wallet can be as simple as downloading a mobile app and recording your seed words. The seed words are a string of characters that you can use to restore your wallet in the event of a loss or theft. It is a good idea to write down these words on paper and keep them in a safe place that isn’t easily accessible.
