Crypto 101: What Are They And How Do You Use Them? – If you are at all interested in keeping up with the moving economy or if you’re under the age of 60, there is a large chance you’ve heard of the term cryptocurrencies.
The future of money is said to be cryptocurrencies or “cryptos”. While some people regard it as something with endless amounts of uses and possibilities, others are skeptical. Cryptos have not yet become mainstream however with the increasing number of enterprises and financial institutions that are buying into them all around the world, cryptos will soon join the mainstream market.
This article will help you understand what cryptocurrencies are and learn why they will make a big impact on all economies in the near future.
Table of Contents
What are cryptocurrencies?
Just like any other currency you can purchase goods and services or trade using cryptos. The difference between cryptos and traditional paper currencies is that crypto is not physical. There are no physical coins or notes when it comes to crypto. All of the money is completely virtual.
Units of cryptocurrency can be bought from brokers or generated through an online process called “mining”. They are used to make payments or store money anonymously. Crypto is popularly represented as coins – similar to casino chips. However, this coin is worthless without the code that is imprinted on it. More than 4,000 cryptocurrencies were in circulation in early 2021, according to Investopedia. Companies are continuing to launch more and more all the time.
The initial cryptocurrency, Bitcoin which you may have heard of, remains the most commonly recognized by businesses. Because Bitcoin is successful on a worldwide scale, it is now the yard for all the other altcoins or “alternative coins” that follow.
As of March 2021, however, Bitcoin is the second-largest traded crypto. Its place at the top was taken over by Tether. These two cryptocurrencies are the only coins with a value over $100 billion (€85 billion). They are now by far the largest cryptos purchased and traded.
How does crypto work?
Looking at Bitcoin as an example, each ‘coin’ is a computer file that is stored in a digital wallet that can be accessed by smartphone apps or other internet-connected devices. Blockchain is the database that allows these files to be transferred from person to person. Most cryptos, not all, use blockchain technology to make sure the transactions of coins are secure.
The secure transferal of coins is withheld via blockchain cryptographic technology. Every transfer of crypto is logged in a virtual public ledger (this is, in effect, adding blocks to a chain). Each block is a record of a transaction, this makes it hard to copy coins or transfer coins that aren’t yours. Blockchain technology makes it harder to for scams and fraud to take place.
Bitcoin and other cryptos can be bought with a bank-issued tender, basically traditional money. It can also be preferred by business owners that customers pay in cryptos when they buy something.
The wide use of cryptos
Cryptos are merely another tradable commodity, much like gold and diamonds. Many people utilize cryptos because they are not controlled by governments and banks. Plus, the transactions are anonymous hence why people prefer them to regular currencies.
While countries such as Algeria and North Macedonia have prohibited the usage of Bitcoin, other countries are more receptive to it. For instance, the Bank of Singapore has reported that it can replace gold with Bitcoin as a store of its value.
Crypto isn’t widely utilized by companies or retailers either. But an ever-growing list of organizations is beginning to accept cryptocurrencies as a legal tender. The credit card company Visa announced in March 2021 that they would recognize crypto as a method of payment. Around the same time, AirBaltic also stated that it is aiming to expand its list of accepted cryptos. PayPal also claimed it would enable its users to purchase and trade using Bitcoin last October. Cryptos are also widely used in online casinos such as Energy Casino. Players can use cryptos as a payment currency when playing games such as blackjack or slots online.
Some firms like Google and Amazon are planning to issue their own cryptocurrency to be used for transactions involving goods and services specifically provided by their companies.
The security of blockchain technology
Although blockchain technology is known for its security system it is not to say that cryptos are not vulnerable to scams, theft, or money laundering. The more publicly recorded transactions that are added to the blockchain the more secure the system becomes.
An instance of such security fails is the launches of fake coins (cryptocurrencies) or Initial Coin Offerings. It is also possible to lose your online wallet details or accidentally deleting your Bitcoin, this would mean your crypto money is lost forever.
As with trading in any commodity, cryptocurrencies may be prone to speculative trading, so such dangers are associated with investing in them.
The downsides to using cryptos
Although the advantages of cryptos are widely known, like any tradable commodity there is a risk factor involved in crypto’s uses.
According to Coinopsy, there are around 2,000 dead coins (if not more) at the moment. Dead coins are cryptos that have failed, have died, or have been created as scams. Analysts think that many of the coins that are currently being used can fail in due course as well. The reasons why these coins are failing range from poor design to misconceived ideas for the uses of cryptocurrencies.
The stability of the crypto market is also heavily affected by the trust issues of customers as well. Coins are more likely to succeed if the technology behind the blockchain provides a clear use and is strongly trusted.
Some have also criticized cryptos for their harm to the environment. The increase in its use (especially in Bitcoin) meant that the computer hardware needed to run the technology to support it was increasingly demanded.
The mining procedure – the release of reward coins by validating blocks with randomly generated numbers – has also stimulated the increasing use of energy-consuming supercomputers that are used to do the heavy mathematical work. In short, cryptocurrencies are an energy-sucking, power-using currency that has a detrimental impact on the environment.
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