LONDON, November 5, 2021 / PRNewswire / - So what exactly is cryptocurrency?
The cryptocurrency has been big news in recent years following massive gains for its investors. The most prolific cryptocurrency in the world is Bitcoin with a current market capitalization of $ 1,169 Tn (November 2021), (Source https://coinmarketcap.com/ ) to put that in context, it is roughly the same as the annual GDP of the entirety of Indonesia, which has a population of The 273m people. (Source https://worldpopulationreview.com/countries/countries-by-gdp)
Bitcoin was created by Satoshi Nakamoto as a way to circumvent traditional banking infrastructure after the financial collapse of 2008. It has yet to gain traction as a transactional currency, but it garnered great general interest in 2017 as an investment opportunity when its value rose from $ 975.70 in March of that year for $ 20,089 upon December 17. At that point, the whole world took notice, and cryptocurrency went from being the exclusive domain of computer geeks to gaining the interest of economists and investment banks.
But what exactly is cryptocurrency?
Well, it is definitely quite confusing. In short, it is a digital version of money. But there is no bank. It is an asset, but it is not attached to anything physical.
It is meant to work in the same way as money. People can have a digital wallet to store digital money, it can be used to represent value in the economy, which can be exchanged with others for goods or services or for fiat currency.
Woah, what is Fiat currency?
Fiat currency is a government issued currency - US dollars, British pounds, etc., which hold their value largely based on the market's confidence in the economic strength of that particular country.
Now this is where the similarities lie. The value of the ticket itself is practically nothing, it is just a bit of paper (or plastic these days), it is what it represents that gives it value.
The serial numbers of the banknotes are registered by the physical bank and the number in circulation is known. The same goes for cryptocurrencies, they are also recorded as numbers in a ledger, and that ledger shows how much of a cryptocurrency is available and who owns it.
So far everything is going well, but this is where it gets a bit complicated.
Unlike the traditional banking system, the cryptocurrency ledger, Blockchain, is decentralized. The blockchain is distributed throughout all parts of the global computer network, recording transactions in a public and verifiable way, but not owned by anyone in particular.
Why are there so many cryptocurrencies?
In theory, anyone can create a cryptocurrency; at heart it's just software. There is no official organization that decides what is a cryptocurrency and what is not, and after the explosion of Bitcoin's value in 2017 there were a host of new altcoins.
OK, what is an Altcoin?
An altcoin is basically any cryptocurrency other than Bitcoin, it is an alternative currency, geddit? They can be mining-based cryptocurrencies, stablecoins, security tokens, and utility tokens.
You go too fast again.
Okay, so Bitcoin is a mining-based cryptocurrency. It is mined by computers, in the case of Bitcoin, at the rate of one block every 10 minutes. Miners are rewarded with Bitcoin and must also validate transactions on the blockchain at the same time as new blocks are minted.
The creator of Bitcoin limited the total number of Bitcoin to 21 million, and there are currently 18.7 million existing, so at the current rate of mining, the last block should be added sometime in 2064.
There are also some unlimited mining-based cryptocurrencies: Etherium, it is the second largest crypto in the world and has an unlimited supply.
Etherium is particularly sought after today because it is the blockchain on which the majority of NFT transactions take place.
NFTs like Crocs League collectibles are a particularly exciting area of โโcrypto investing, with the first drop being depleted by $ 500,000 in a matter of hours recently. The Etherium blockchain was used in almost all of these sales to publicly display NFT's transaction history and token metadata, making it virtually impossible to "steal" the property.
To learn more about NFTs, non-fungible tokens, take a look at our previous guide for Dummies.
There are thousands of other altcoins on the market, and to be successful, they must offer new solutions to existing problems with major players like bitcoin - making transactions simpler or more efficient, for example. Others were simply created as alternatives, such as Dogecoin, which began largely as a joke, and is now the 9th.th largest crypto with a capitalization of $ 35.1 billion, which is why its founders are now laughing all the way to the digital bank.
How do you buy them?
Cryptocurrencies, like any other asset, can be purchased for cash, such as dollars or pounds. There are numerous exchanges to make that possible, and users can hold their cryptocurrency with those exchanges or store it in their own wallet.
There are several types of wallet: Etoro, Coinbase, Binance, CoinCorner, Coinjar, Luno, and it is a good idea to read their reviews before starting.
When you have a wallet, you can buy cryptocurrencies. It is very important to note that a Bitcoin transaction is considered unconfirmed until it has been included in a block on the blockchain, at which point it has a confirmation. Each additional block is another confirmation. Coinbase requires a minimum of three confirmations to consider a final bitcoin transaction. Each new block takes about ten minutes to add to the blockchain, so a confirmation from Coinbase would take about 30 minutes.
The general rule of thumb is that the more money you invest, the more confirmations to look for before handing over your money.
Why investing in cryptocurrencies is so chaotic?
Unlike traditional financial assets, such as stocks or commodities, cryptocurrencies are not valued in terms of what they can be used for. Unlike normal investments that are a bet on the future earnings of a company or the usefulness of a given material, cryptocurrencies are a bet on how many people are interested in them and, unlike traditional fiat currencies, cryptocurrencies do not they have a central bank in charge of using monetary policy to ensure that its value does not fluctuate too much.
Over the past year, those fluctuations have been mostly to the upside: Even after its slump and sizable gains in recent years, the price was up 65 percent in 2021.
But, as with everything financial, there is no guarantee that the trajectory will continue to increase. It could go down as easily as it goes up, so be careful.
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