The first cryptocurrency was bitcoin which was launched in 2009 by an anonymous person who goes by the name Satoshi Nakamoto. Bitcoin has grown rapidly from $0.10 in 2010 to $68,000 in 2021.
As a result of the success of Bitcoin, everyone is interested in cryptocurrency and how they may become wealthy, since other people have achieved new levels of wealth.
According to Statista, 27% of people had no idea what cryptocurrency actually is. In addition, people who believe it is inherently volatile and risky tend to believe it due to a lack of knowledge.
Thus, in order to simplify the matter for you, I have written this blog in the simplest of terms.
In this blog, you’ll learn:
- What is cryptocurrency?
- Is cryptocurrency secure?
- What are the types of cryptocurrency?
- What are the advantages and disadvantages of cryptocurrency?
Let’s get started.
What is Cryptocurrency?
Cryptocurrency is an innovative currency that allows for secure transactions between parties without the need of a central bank.
It is also known as virtual cash, internet money or electronic currency. Cryptocurrency can be used to make payments for goods and services online.
The decentralized nature of cryptocurrency means that there are almost no fees—depending on the crypto coin you trade— it cannot be frozen by any one party and it offers complete anonymity in some cases.
Moreover, cryptocurrencies are decentralized, meaning they are not subject to government or financial institution control.
This currency relies on a decentralized network called a blockchain to keep track of transactions.
When we transfer $10 from our account to another account in a typical banking system, the banks will update the entries as "we have -$10 and the receiver has +$10".
In the case of crypto, there is one ledger that has all the information about every transaction. This ledger is available to everyone on the network. All the ledgers are updated whenever a transaction takes place. It helps keep everything secure.
Is Cryptocurrency Secure?
Cryptocurrency transactions are secure because they use cryptography (a type of math) to keep information private and difficult to change.
This makes it very hard for hackers or other attackers who want to steal your money from being able to access it.
Your cryptocurrency wallet like Trust Wallet and Metamask will generate an address that you give out so others can send you coins on the network without risking their security by giving out any personal information about themselves such as their name and credit card number.
Why can't cryptocurrency be hacked?
Cryptocurrencies cannot be hacked due to blockchain technology. The decentralized and transparent nature of the blockchain makes it difficult for hackers to penetrate.
Additionally, cryptocurrency holders are their own banks, meaning they are in control of their funds at all times. This makes cryptocurrencies a safer investment than traditional assets.
Hackers must hack all the servers on a network in order to hack a cryptocurrency. Hackers may be able to compromise one system, but not all of the thousands of servers on the network.
You must have heard that the exchange has been hacked. A few days ago, Bitmart was hacked with 195 million dollars.
This does not imply that the cryptocurrency blockchain had been compromised; it means that the website where the entire user database is located had been compromised.
As a result of the hack, the hacker was able to withdraw funds from the exchange. There you should store your funds in a decentralized wallet, such as Trust Wallet or Metamask, which you have exclusive access to.
What are the Types of Cryptocurrency?
There are more than 15,000 cryptocurrencies that are currently available on the market. It doesn’t mean each crypto has its own native block chain, most are derived from Entherum or Smart Chain as a token.
As an example, BTC has a Wrapped Bitcoin (WBTC) that is pegged 1:1 to the original BTC. WBTC resides on different blockchains as a token, for instance, Entherum, Smart Chain, and Polygon.
As we consider the types of cryptocurrency, some of them are as follows:
- Payment cryptocurrencies
- Privacy cryptocurrencies
- Utility cryptocurrencies
- Stable cryptocurrencies
I'm going to explain them one at a time.
1. Payment Currencies
The payment cryptocurrencies are cryptocurrencies that can be used to send payments across locations more quickly and incur fewer fees.
By the way, any cryptocurrency can be used as a payment, but there are many fees involved. You might have to pay $240 per transaction if you send Entherum (ETH) to another person.
Ripple is considered to be the best for crypto for transactions. Furthermore, Ripple serves as a real-time gross settlement system, currency exchange and remittance network that is managed by Ripple Labs Inc., a technology company based in the United States.
Solana is the latest competitor with the fastest transaction speed and lowest transaction costs.
2. Privacy Coins
Privacy coins are a type of cryptocurrency that focus on keeping the identity of their holders anonymous.
Privacy crypto currencies make it difficult for people to trace transaction histories, balances, or locations; making them an attractive option for those who want complete freedom over their financial transactions.
In order to avoid being linked to a recipient, these coins use stealth addresses where a sender must generate a new address for every transaction. The privacy coin Monero (XMR) uses a variant of stealth addresses called the dual-key stealth address protocol (DKSAP).
Some of the privacy coins are XMR, ZEC, MXR, & PIVX. You can find all the privacy coins from Coinmarketcap with the Privacy filter.
Bitcoin is the polar opposite of such a blockchain which shows every transaction, including the addresses of wallets.
4. Utility Tokens
In the Merriam-Webster dictionary, a utility token is defined as the following, “a digital token of cryptocurrency that is issued in order to fund development of the cryptocurrency and that can be later used to purchase a good or service offered by the issuer of the cryptocurrency”
Utility tokens are assets bought on the blockchain that will be used for some future purpose.
One simple example would be for a company to issue utility tokens as a method of funding the development of an online game. Upon the completion of the game's development, token owners would be able to use their tokens to purchase items within the game.
Gamers gain access to in-game tokens for future use, while game developers get access to capital to finance their projects.
In addition to being able to purchase virtual items, utility tokens provide many other useful functions.
Let us consider the League of Kingdoms as an example. Its token can be used to purchase land on OpenSea, as well as other items.
5. Stable Coins
When it comes to cryptocurrency, volatility is king. Prices can swing wildly up and down in short order, causing havoc for holders of digital tokens.
This high degree of volatility is a major issue for those looking to use cryptocurrencies for everyday transactions, as they can't be sure what the value of their holdings will be from one day to the next.
One way to combat this volatility is through the use of stable coins. These are cryptocurrencies that are designed to have a more stable value, which makes them better suited for use in transactions.
Some well-known stable coins are USDC, PAX, GUSD, TUSD, USDT, & DAI.
What are the Advantages and Disadvantages of Cryptocurrency?
Each currency has its own set of advantages as well as disadvantages. Cryptocurrency is no different. I will provide you with both of the advantages and disadvantages of the.
Advantages
Cryptocurrency possesses the following advantages:
- Low fees. Cryptocurrency operates with meager fees, making it an attractive option compared to other payment methods such as credit card payments. You can make the transfer worldwide in a matter of seconds.
- No association with governments. They are independent of governments, which means that if a government faces financial issues, it will not affect the cryptocurrency.
- Profit potential. It provides a considerable profit potential because if you buy a coin at a low price later down the line, its value may increase.
- Easy to use. Due to many websites and businesses now adopting cryptocurrency is becoming more widespread and easier to use. There are also cryptocurrency debit cards on the market that people can use.
- Security. By using a decentralized platform, your cryptocurrency is entirely secure. Using such a method keeps your account exceptionally secure until or unless you lose your key.
- Future of currency. Over the years, the currency has changed its form, and crypto is considered it's future. Many companies are adopting, and soon physical money will disappear.
Disadvantages
Disadvantages of using cryptocurrency are as follows:
- Losing Wallet. As mentioned before, in a decentralized system, you use a 12 word-phrase key that is given to you to keep it secure. If you lose your 12 word-phrase key, you will lose your wallet as well as all its contents even if it has one billion dollars, you’ll lose the money forever.
- Value of Coin. The value of the coin you possess may change in the future, and its value will decrease. This way, you are likely to incur a significant loss. Similarly, if users suddenly stop using the coins, it will be nothing more than a digital waste.
- Vulnerable to Scam. Some cryptocurrencies are vulnerable to scam, especially new coins that are considered shits coin.Do Your Own Research (DYOR) before you invest in a new coin or token.
Conclusion
In the end, cryptocurrency is a very unpredictable market where there is no telling if you will gain profit or loss. It is more or less a gamble that people take and, if handled properly, will succeed.
Use your investments wisely and do proper research before buying any of the cryptocurrencies out there. Be sure to take guidance from the people who understand the logistics of such a system and guide you towards profit.
