What is Cryptocurrency?
Cryptocurrency is actually a form of digital money, although instead of being issued or guaranteed by any Government or monetary authority in any country, Cryptocurrency is issued by Blockchain project creators.
Sometimes these people are anonymous, write a few lines of code and create a lot of cryptocurrency. But cryptocurrencies are only valuable when they are widely accepted and used by the community, they are not guaranteed by banks or any other trusted organization that we can keep these coins in exchange for fiat money.
This problem leads to Memecoins, or scam coins which make many people lose money because they cannot sell to anyone. That creates a lot of bad reputation for cryptocurrencies.
How does Cryptocurrency work?
Cryptocurrencies are based on blockchain, a distributed public ledger that keeps track of all transactions that are updated and held by currency holders.
Cryptocurrency units are created through a process known as mining, which involves using computer power to solve complex mathematical problems that make coins. Users can also purchase the currencies from brokers and store and spend them with cryptographic wallets.
You don’t own anything tangible if you own cryptocurrency. What you have is a key that enable you to transfer a record or a unit of measurement from one person to another without the assistance of a trusted third party.
Types of Cryptocurrency
Crypto Coins vs. Tokens
Currently, there are about 2,000 cryptocurrencies on the market, including both Coin and Token. Coin is also a forms of cryptocurrency built and developed on a separate blockchain platform and operates independently. Coin was born with the purpose of solving problems of payment, finance, security, application development…
Some typical Coins on the current market such as: Bitcoin, Ethereum, Cardano, Stellar, NEO, Litecoin, IOTA, and so on.
Tokens are also cryptocurrency and are usually issued from ICO (Initial Coin Offering) projects. Tokens are developed on a certain Coin Blockchain platform, as we often see most of the early tokens using Ethereum’s Blockchain according to the ERC-20 standard. In addition, some tokens also use the background of WAVES, NEO, ICON and even Bitcoin.
What Are Altcoins?
Altcoin is a combination of two words Alt and Coin. In this case, Alt means alternative form, Coin means money. Combined, Altcoin means alternative form of money. The currency used as an alternative is the digital currency Bitcoin.
Simply, Altcoins are digital currencies born after Bitcoin. Most Altcoins are encrypted from Bitcoin. Each type of Altcoin will be handled and used for different purposes.
Advantages and Disadvantages of Cryptocurrency
Some advantages and disadvantages of cryptocurrencies are as follows.
Advantages
- Cryptocurrencies represent a new, decentralized money paradigm. Centralized intermediaries, such as banks and monetary institutions, are not required in this system to enforce trust and police transactions between two parties. Thus, a cryptocurrency-based system eliminates the possibility of a single point of failure, such as a large bank, triggering a global crisis, such as the one triggered in 2008 by the failure of institutions in the United States.
- Cryptocurrencies promise to make it easier to transfer funds directly between two parties, eliminating the need for a trusted third party such as a bank or credit card company. Such decentralized transfers are protected by the use of public and private keys, as well as various types of incentive systems, such as proof of work or proof of stake.
- Cryptocurrency transfers between two transacting parties are faster than traditional money transfers because they do not use third-party intermediaries. Flash loans are a good example of such decentralized transfers in decentralized finance. These loans, which are processed without the use of collateral, can be completed in seconds and used in trading.
- Cryptocurrency investments can be profitable. Over the last decade, the value of cryptocurrency markets has skyrocketed, reaching nearly $2 trillion at one point. Bitcoin was worth more than $862 billion in crypto markets as of December 20, 2021.
Disadvantages
- Cryptocurrencies, despite their claim to be an anonymous form of transaction, are actually pseudonymous. They leave a digital trail that can be deciphered by agencies such as the Federal Bureau of Investigation (FBI). This opens the door to governments or federal authorities tracking ordinary citizens’ financial transactions.
- Cryptocurrencies have grown in popularity among criminals as a tool for nefarious activities such as money laundering and illegal purchases. The case of Dread Pirate Roberts, who ran a drug marketplace on the dark web, is well known. Cryptocurrencies have also become popular among hackers, who use them to carry out ransomware attacks.
- In theory, cryptocurrencies are supposed to be decentralized, with their wealth distributed among many parties via a blockchain. In practice, ownership is extremely concentrated. An MIT study, for example, discovered that only 11,000 investors held roughly 45 percent of Bitcoin’s soaring value.
- Anyone with a computer and an Internet connection can mine them. However, mining popular cryptocurrencies requires a significant amount of energy, sometimes as much as entire countries consume. Mining has been concentrated among large firms with revenues in the billions of dollars due to high energy costs and the unpredictability of the industry. According to an MIT study, ten percent of the mining capacity is accounted for by ten percent of the miners.
- While cryptocurrency blockchains are extremely secure, other crypto repositories, such as exchanges and wallets, can be compromised. Many cryptocurrency exchanges and wallets have been hacked over the years, with millions of dollars in “coins” stolen in some cases.
Conclusion
Understanding the market is the first step toward success as a trader. To capitalize on market opportunities, you must have a firm grasp on key concepts. HotQA has been providing basic to advanced knowledge of the crypto market, as well as the latest market news, to help you become a profitable trader and gain more knowledge in this potential market.
Disclaimer: This is not investment advice, the article is for informational and sharing purposes only.
