Most people today believe that cryptocurrency is the evolution of money and payment methods as we know them. Cryptocurrency is the means of online payment that excludes any middleman and any additional fees like with other online payments, such as credit or debit cards. The idea behind cryptocurrency was formed to create a decentralized market, which governments and banks cannot interfere with or pose taxes and fees upon.
Basically, it means that you can exchange goods online using cryptocoins as means of payment. The online distributed and decentralized ledger, known as blockchain, records transactions and leverages a high level of cryptography to make these transactions secure. Transactions are conducted peer-to-peer without any third parties involved, while the blockchain records the transactions and makes them public record. Let’s go a bit into detail about what cryptocurrency really is.
How to use cryptocurrency
In order to use cryptocurrency online, you’ll have to be in possession of cryptocoins or fragments of cryptocoins, which go into your online or desktop wallet. To do that, you’ll either have to purchase or mine cryptocoins. In order to mine cryptocoins, you’ll have to lend your hardware to the blockchain so that it can be used for accounting.
Simply put, you lend your hardware to help the blockchain verify and record online transactions, while you get rewarded for it with fragments of cryptocoin. Once you have a cryptocurrency in your possession, you can use it to procure goods from other peers online or you can simply sell it, as well as use it to buy a different cryptocoin.
How does a blockchain work?
The blockchain is a decentralized ledger which serves as a list of records known as “blocks”. Each block is linked and secured using sophisticated cryptography. Blockchain records data, including transactions between two parties, into blocks. After the data has been recorded, it can no longer be altered, especially not retroactively.
The purpose of this is to record the number of cryptocoins a person has and how much they’ve spent on a transaction so that the cryptocoins that were spent cannot be used again i.e. it prevents double-spending. After the transaction is completed, the block is “sealed” and a new block is created. The only link the new block has with the previous one is a hash and a timestamp that points toward the previously sealed block.
Types of cryptocurrencies
The first ever blockchain and cryptocoin were created by an individual or group of people known as Satoshi Nakamoto back in 2009, which marked the beginning of cryptocurrency. Today, there is a little over a thousand different cryptocurrencies with their own unique cryptocoins on the market. Each cryptocurrency has its own hash algorithm and timestamp method, so choosing which one to use is based on your own preference.
For instance, if you prefer anonymity over public records, you can opt for Dash. They work on a decentralized mastercode which helps you trade Dash safely and privately. It’s important to remember that each cryptocurrency has its own unique eco-system, mining methods, applications and benefits.
Why use cryptocurrency?
The simplest answer to that question would be “there’s no middle man”. However, using cryptocurrency has more benefits in its arsenal. As mentioned before, cryptocurrency is decentralized from the banking system, which means you can complete transactions online without paying additional fees or providing sensitive information to make a purchase, like with credit cards. In addition, cryptocurrency payments require no line of credit or permissions to make transactions.
Also, your transactions are completed almost immediately, including sending or receiving funds, without a third party’s involvement. However, the cryptocurrency market is still quite unstable and highly volatile, but that can still work in your favor if you know how to work the market. Furthermore, your assets are your own and you hold a unique digital key to how much cryptocoins you have. Therefore, there is no way for your assets to be limited or frozen by a third party, such as a bank.
Cryptocurrencies have gained a favorable reputation in the past few years. This new trend is starting to open new doors for a new and improved economy. With its high functionality and innovation, it’s hard for a cryptocurrency to go unnoticed.
|About the Author:
Dan Miller is a Payments officer with nearly ten years of experience in banking and international payments in the Australian banking sector. He has a masters degree in finance and banking. He is married and also a father of a beautiful little girl.
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