Simply put, a cryptocurrency is a type of virtual currency that exists entirely on the internet. It is a cryptographically(secured communication technique) protected currency. It is nearly impossible to counterfeit or double-spend a cryptocurrency.
Blockchain, which is like a public digital ledger, is used to record all transactions related to cryptocurrency. Every process along the way is protected by cryptography.
It is important to note that a cryptocurrency is not issued by a government but managed through a blockchain’s private cryptographic database. Blockchain is a technology that allows cryptocurrencies to act as government (fiat) money without the involvement of any central bank or trusted third party.
Let’s look at the mechanics and the way databases of cryptocurrencies work. Bitcoin, the first and most famous cryptocurrency, consists of a network of different peers. Every peer has a record of the complete history of each and every transaction and thus of the balance of every account.
A transaction is a file that says, “James gives 100 Bitcoins to Anna “and is signed by James’s private key. It’s basic public-key cryptography. After signed, a transaction is broadcasted in the network, sent from one peer to every other peer. This is a p2p-technology.
How to use cryptocurrency?
To use cryptocurrency, first, you need to buy it. Any investor can purchase through cryptocurrency exchanges such as Coinbase, Cash app, etc.
Typically, you create an account on a cryptocurrency exchange. Then you can transfer real money to buy cryptocurrencies like Bitcoin or Ethereum etc. Coinbase is one popular cryptocurrency exchange where you can create a wallet and buy and sell Bitcoin and other cryptocurrencies.
While some cryptocurrencies, including Bitcoin, can be purchased with U.S. dollars, others require Bitcoin or other cryptocurrencies. To own or pay with a cryptocurrency, you need a wallet for that currency. One can create a wallet on cryptocurrency exchange platforms.
Also, Cryptocurrency units can be purchased from brokers or generated through an online process called “mining” and used to make anonymous payments or deposit money.
Now, what is mining’?
‘Mining’ is an essential part of the technology behind cryptocurrencies. Transactions are verified and added to a digital ledger, i.e., blockchain. The mining process involves competing with other crypto miners to solve complex mathematical problems with cryptographic hash functions. These are associated with a block containing transaction data. Miners compete with their peers to reset the hash value generated by a cryptocurrency transaction. The first miner can add a block to the ledger and receive a reward to crack the code. The reward will be in the form of a fraction of a cryptocurrency.
Some of the upcoming trends of usage of cryptocurrencies are :
You can get around the current restrictions until crypto becomes mainstream by exchanging crypto for gift cards. Some services offer the ability to convert paid cryptocurrencies into cash on the backend automatically. Some companies provide debit cards with cryptocurrencies indistinguishable from any other plastic card for paying for goods or services.
Suppose you want to spend cryptocurrency at a retail store that doesn’t accept it directly. In that case, you can use a cryptocurrency debit card like a BitPay card in the US.
The other common cryptocurrencies serve a different purpose. Some are optimized for on-the-spot use of cash, and others are designed for private and direct transactions.
As the adoption rate gradually increases, Anyone can use cryptocurrency, unlike opening a bank account which requires documents and other documents. It does not seem too far when you can use cryptocurrencies to buy everyday goods and services. However, many people invest in cryptocurrencies like other assets such as stocks or precious metals.
Many governments are cautiously approaching this new form of exchange, fearing their lack of centralized control and their impact on financial security. While some people view cryptocurrencies as having unlimited potential and uses, others are less than convinced. Cryptocurrencies have not yet become mainstream, but more companies and financial institutions are buying them and their growing influence worldwide.