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What is Cryptocurrency?

Also known as alternative coins, cryptocurrency is a virtual or digital currency secured by cryptography, eliminating counterfeits and double-spends, according to Michael Sonnenshein (2021). Most of them, as Sonnenshein continues, are decentralized networks that rely on blockchain technology that is ledge distributed and enforced by disparate networks of computers. Notably, cryptocurrencies are not issued by central authorities; hence they are theoretically free of any governmental manipulation or interference. The name comes from encryption, a technique used to secure the networks in which the exchanges occur. Notably, blockchains remain an essential part of cryptocurrencies since they are the organizational measures used to maintain transactional information integrity.

How It Works and How it is Created

Cryptocurrency systems enable secure online payments denominated virtually as “tokens” and are internally represented by ledger entries. These blockchains are used to create digital transaction records, contracts, and certificates that only allow entries and can not be changed or deleted; they are far safer and more secure than paper fillings and digital accounts. According to Alexander Sumner (2021), the platform archives the seller and buyer information while recording it as a “hash” or string of numerals and characters produced by complex math functions. These hash functions are linked to prior hash functions; hence outside access is immediately detected upon altering any of them. Sumner adds that once the hashes reach a specific number, they are converted into “blocks” linked to other blocks in the server, forming a chain that is updated every 10 minutes and stored on several serves worldwide. It is also noteworthy that cryptocurrencies operate in closed systems; hence there are specific fixed amounts. New ones are only created by following strict guidelines, as in the example of Bitcoin, which has caps encased by software on the number of units creatable, making the unit more valuable.

Types of Cryptocurrency

1. Bitcoin is the most common type of cryptocurrency; it uses blockchain technology to allow its users to make transactions under decentralized peer-to-peer networks and has become the standard cryptocurrency. It is the most popular due to its market capitalization and large user base.
2. Litecoin: Launched in 2011, Litecoin is an open-source, decentralized global network for payments. It was built as the alternative to Bitcoin and has a coin limit of 84 million, while Bitcoin has a 21 million coin limit. Litecoin is believably faster in featuring transactions and operates in a “scrypt” algorithm rather than the “SHA-256” algorithm used by Bitcoin.
3. Ethereum: Denoted as ETH, it is an open-source cryptocurrency developed in 2015 that uses blockchain technology. According to Equity Trust (c2021), it majors on running any decentralized application’s programming code enabling it to be used by app developers to pay for fees and services over the network.
4. Cardano: ADA is a type of cryptocurrency that is “Ouroboros proof-of-stake” created to decentralize the similarity of financial products while also providing chain interoperability solutions, voter fraud, and the tracing of legal contracts. Its market capitalization is at $9.8 billion, with one ADA trading for $0.31, as noted by Luke Conway (2021) of Investopedia.
5. Polkadot: Or DOT, Polkadot was created to connect blockchains that are permissioned and permissionless, including oracles, by allowing their systems to work together.
6. Bitcoin Cash (BCH): This cryptocurrency was created to improve specific Bitcoin features, such as increasing the size of blocks and faster transaction processing, according to Equity Trust (c2021).
7. Stellar (XLM). This cryptocurrency targets enterprise by allowing large transactions by connecting enterprises and institutions and cutting down delays and intermediaries. As Luke Conway notes, stellar is also open-source, allows cross-currency transfers, and requires users to hold Lumens to facilitate transactions.
8. Chainlink: This decentralized oracle transaction network aims at bridging the smart contracts gap like the case of Ethereum and data that is out of it.

Things to Know Before Investing In Cryptocurrency.

1. They are very volatile: Their value is susceptible to changes; hence investing requires calculated risk measures.
2. There are a lot of doubts and unknowns: Just a few even know about cryptocurrency and who controls its value; always read and listen out and wide.
3. They are prone to fraud. They may be transaction schemes of people escaping from bank charges and government taxes as they are not regulated.
4. Their rates of return are indeterminate. Relative to gambling, cryptocurrency has no standard regulations, and since it is based on peer-to-peer transactions, there are no patterns for its rise or fall in its value, as Chris Hogan (c2021) notes.

References

Michael Sonnenshein. (2021). Investopedia: Cryptocurrency. Retrieved from https://www.investopedia.com/terms/c/cryptocurrency.asp

Alexander Sumner. (2021). Business Insider: Africa: Cryptocurrency is an electronic, private type of money – here’s how it works and how you can invest in it. Retrieved from https://africa.businessinsider.com/markets/cryptocurrency-is-an-electronic-private-type-of-money-heres-how-it-works-and-how-you/f699dxs

Luke Conway. (2021). Investopedia: The 10 Most Important Cryptocurrencies Other Than Bitcoin. Retrieved from https://www.investopedia.com/tech/most-important-cryptocurrencies-other-than-bitcoin/

Equity Trust (c2021). 8 of the Most Well-Known Types of Cryptocurrencies. Retrieved from https://www.trustetc.com/blog/cryptocurrency-types/

Chris Hogan. (c2021). 4 Things to Know Before Investing in Cryptocurrency. Retrieved from https://www.chrishogan360.com/investing/investing-in-cryptocurrency[/vc_column_text][/vc_column][/vc_row]