What is cryptocurrency, and how does it work?
What is crypto? A cryptocurrency is a digital or virtual currency secured by cryptography, making it nearly impossible to counterfeit. More information about bitcoin and blockchain on the exex.com blog
The term cryptocurrency has many definitions. We can give this definition of the term - it is a virtual asset, the operation of which is provided by a network of decentralized nodes. Nodes (nodes) are created based on a blockchain.
The history of cryptocurrencies dates back to the 1980s. Cryptographer David Chaum proposed algorithms aimed at transferring value through the network. He also founded the DigiCash project, but it did not last long.
The first cryptocurrency was Bitcoin, which appeared on the market in 2009. It was followed by altcoins Namecoin and Litecoin three years later. It is believed that Satoshi Nakamoto created Bitcoin. There is still no information about who this person is. Bitcoin is considered the most famous digital asset. In addition, there are other types of cryptocurrencies on the market.
Types of Cryptocurrencies
Several types of cryptocurrencies represent the cryptocurrency market. Among them, there are altcoins. These are cryptocurrencies that have their blockchain. Some of these assets are somewhat similar to Bitcoin, and the rest have their structure.
Altcoin creators speed up transactions, optimize mining, create contracts, and form the bases for cryptocurrency application activity.
There are also tokens on the market. They, too, are digital assets, but they usually do not have their blockchain. Various companies develop tokens to raise funds for developing their applications or to ensure the operation of existing ones.
Stablecoins are also a type of cryptocurrency. These are a special type of digital assets, and their value is tied to a tangible asset:
- U.S. dollar;
- precious stones,
- oil, and so on.
Unlike many other cryptocurrencies, stablecoins have a stable price. Their volatility is extremely low.
There are also NFTs. These are non-mutually exchangeable tokens. They're used to assert ownership of a physical asset. Artists use NFTs to make collections and sell them on the market for large sums of money.
Are cryptocurrencies legal?
The peculiarity of cryptocurrencies is that they have different legal statuses in different countries. In some states (El Salvador), the cryptocurrency Bitcoin is the official means of payment. This currency has a legal status in the country, and it is allowed to buy and sell the asset. In other countries, such as China, Bitcoin is completely prohibited for banking structures, but there is no total ban for individuals.
Thus, each state forms its regulatory framework for working with cryptocurrencies. Somewhere they are banned completely, somewhere partially or completely allowed. Nevertheless, despite their fuzzy legal status, cryptocurrencies are attractive investment assets.
Are cryptocurrencies safe investments?
The expert community has a fierce debate about whether cryptocurrencies are safe and sound investments. To say that cryptocurrencies are entirely secure is impossible. Each digital asset has its degree of volatility. The volatility can be significant, which can cause investors to lose large amounts of money.
However, cryptocurrencies can bring high returns if you anticipate their movement in the market. Large investors are mostly invested in Bitcoin and a few other top 10 currencies.
Advantages and disadvantages of cryptocurrencies
Each cryptocurrency has its advantages and disadvantages. In general, cryptocurrencies have the following advantages:
- Are weakly susceptible to inflation;
- Have features that fiat currencies do not have.
At the same time, cryptocurrencies also have some disadvantages. One of the main disadvantages is the high volatility. The basics of cryptocurrencies are that they are volatile by nature. To understand how volatile an asset is, you need to understand the overall market situation, how the blockchain technology of digital currency is developing in general, and so on.
Many virtual currencies have a White Paper, where the introduction contains information about what kind of currency it is, what it is for, and what its value is. Based on the data studied, you can make a rough prediction about the asset's volatility.
Another disadvantage of cryptocurrencies is that they are still perceived in society with suspicion because people do not quite understand what they are and what they can do with them in everyday activities.
No other significant disadvantages of cryptocurrencies have been noticed.
How to buy cryptocurrency
Cryptocurrency can be purchased in different ways: through payment services, exchanges, cryptocurrency wallets, Telegram bots, and, of course, cryptocurrency exchanges. You can buy cryptocurrency, including on the exex.com exchange.
Are cryptocurrencies safe?
This question is inextricably linked to whether cryptocurrencies can be considered a safe investment. The safety of a cryptocurrency is determined by many factors, including how long it has been on the market, who created it, how accepted it is in the market, and where it is used in the economy.
It can be said that there are no completely safe cryptocurrencies; there are digital assets that are more secure than others and without scams. Bitcoin and ETH can be referred to as such. Specialized forums periodically raise topics concerning how safe such currencies are, and there is still no consensus.
Is it possible to create cryptocurrencies on your own?
A unique feature of cryptocurrencies is that you can create them yourself. If a user has developed their blockchain with a network, they can create a new coin based on it, although it is not a quick process. At the same time, a fork of an existing blockchain can be chosen. To create a coin or token, one must have the appropriate technical knowledge, programming experience, and a team of several people.
In conclusion, we can say that cryptocurrencies have already become part of the global financial system. They are attractive for investment, the most famous news portals write about them, and they are discussed in economic forums with the participation of politicians. Many countries create favorable conditions for the development of cryptocurrencies, while others prohibit them.
The cryptocurrency market generally continues to develop, and new coins appear. There are opinions that the value of cryptocurrencies will increase over time, and billions of people will use them.