A new type of currency is trending in this digital world- Cryptocurrency. Recently, the immense increase in the prices of cryptocurrencies has come to the attention of the world in the last few years and has brought this investment product into the limelight. However, most people are not very sure of what it is.
This module has been entirely dedicated to cryptocurrencies. We have covered all the important aspects of this product including how you can buy and sell them and of course how you can use them.
What is a cryptocurrency?
So, let’s come to the basic question, what it is? To put it simply, a cryptocurrency is a virtual medium of exchange to conduct financial transactions through the internet. In other words, it is digital money where there are no physical coins or notes. It can be transferred to someone online, without the use of any bank or financial agency.
The cryptocurrency market is an alternative to the traditional banking system that is used globally. While in the traditional banking system, a central authority controls and maintains all the transactions, in a crypto-system, the transactions ledger is distributed over millions of computers. Moreover, while the traditional banking system has only a few banks, the crypto-system is much larger having no restriction on anyone entering or exiting the system. Hence, the cryptocurrency system is more open, and where no one controls individuals or their participation in the system.
Now, you must be wondering if there are no banks or financial agencies involved in a cryptocurrency transaction, how does the transaction take place? Well, cryptocurrencies use a technology called Blockchain, which we have explained in section 3 of this module. The use of blockchain brings transparency to the transactions and helps cryptocurrencies to remain decentralized.
Cryptocurrencies are not controlled by any central authority and hence are out of government control and interference. To send and receive cryptocurrency without requiring a third party to verify the transactions with the help of public-key cryptography (PKC) framework which consist of private and public key. Every cryptocurrency has 2 sets of keys – one public key (similar to a bank account number) and a private key (similar to an ATM PIN). When one user sends a cryptocurrency to another individual, these public and private keys are given to the receiver. There’s no third party involved in this entire transaction.
They have minimal processing fees since no third party is involved in the transaction.
Bitcoin is the most popular cryptocurrencies at present. We have discussed it in detail in a later section of this module. There are other popular cryptocurrencies as well such as Ethereum, Litecoin, Tether and others.
Cryptocurrencies are extremely volatile and involve a significant amount of risk. Participate in the cryptocurrency market only after obtaining sufficient knowledge about it.
You will often come across the word cryptocurrency mining. Cryptocurrency mining is a term used for the process of earning a cryptocurrency for a work you complete that is by solving cryptographic equations through the use of computers. The process mainly involves validating data blocks and adding transaction records to the blockchain. People participate in crypto mining mainly for income and the freedom to earn money without the interference of any government.