Cryptocurrencies have become increasingly popular over the last few years, however, most people still don’t know exactly what they are or how they work. In today’s article, we are going to discuss the nature of cryptocurrencies, how they work and what’s their use.
Bitcoin was the first-ever cryptocurrency. Bitcoin was created back in 2009 by someone named ‘Satoshi Nakamoto’, most likely an alias. Cryptocurrencies, in general, are digital assets that use cryptographical functions in order to be decentralized, immutable and transparent.
Every single cryptocurrency uses what’s known as a Blockchain. This term basically refers to a digital ledger that is immutable. Every transaction on a blockchain is recorded forever, meaning that no one can ever modify it or delete it.
The blockchain is usually public which means that everyone can check any transaction at any time. Cryptocurrencies can be sent directly between two peers, there is no need for a third-party and the fees are minimal.
Types of Cryptocurrencies
Bitcoin was intended to become a global form of payment, an alternative to traditional currencies, however, Bitcoin cannot currently handle enough transactions to become a global currency and it’s also facing high volatility.
Most cryptocurrencies are extremely volatile because of low liquidity, a problem that makes it really hard for any cryptocurrency to become widely adopted as a form of payment.
Bitcoin has now become kind of like ‘digital gold’. It is now mainly used as a safe haven (An investment that is expected to retain or increase in value during times of market turbulence). Bitcoin has shown that it’s able to outperform the rest of the market in times of economic crisis or uncertainty.
Cryptocurrencies can be used to solve all sorts of problems. They are great for low-cost money transfers as the fee is always the same no matter how big your transaction is. For example, recently, we have seen a $99 million Litecoin transaction that took only 2:30 minutes to process and cost $0.4 in fees.
Other cryptocurrency uses include, wealth management, social media or battling electoral fraud thanks to blockchain technology.
Recently a new type of cryptocurrency backed by other assets has become quite popular. Stablecoins are cryptocurrencies pegged against the U.S. dollar and backed by fiat, gold or other cryptocurrencies.
Stablecoins are able to maintain the same value no matter what by using smart contracts or other systems that will automatically trigger when needed to keep the price at $1 or whatever the value is.
Privacy coins have become quite popular as well. A privacy coin uses a blockchain like any other cryptocurrency, however, transactions are not publically documented in it. One cannot track back transactions or find out who sent them. With Bitcoin and other traditional cryptocurrencies, someone can actually find out your identity if you haven’t taken the appropriate measures.
Privacy coins basically obscure the sender’s address as well as the receiver’s address and the transaction amount.
There are many types of cryptocurrencies and the blockchain technology is being used to solve many real-world problems. Cryptocurrencies are no longer just speculative assets, they have real value and can be used in most industries.