Cryptocurrencies, essentially, are digital assets. Why are they called “crypto”? Well, it’s because crypto transactions are guarded by encryption technology or cryptographic codes. From its modest debut in 2008, the crypto industry has grown by leaps and bounds over the last decade. In 2021, the crypto market cap touched a whopping $3 trillion. Built on blockchain technology, cryptocurrencies offer a quicker, more affordable, as well as a more effective payment facility over traditional fiat currencies. At its core, cryptocurrencies are driven by the mission to democratize the economy and make payments more convenient, streamlined, and safer, especially international payments.
Key facts and figures about cryptocurrencies-
- 300 million+ people across the world own cryptocurrencies
- 18,000+ businesses globally accept crypto payment
- As of now, there are 19,000+ cryptocurrencies
- Bitcoin is the first cryptocurrency and the largest of the all cryptocurrencies
- Crypto market is expected to grow by 5x from 2022 to 2030
- Cryptocurrencies have garnered massive attention from esteemed institutional investors, leading business tycoons, star influencers, and celebrities from all over the world
- Cryptocurrency is the primary and sole payment system for NFTs and Metaverse projects
- Bitcoin, the king of cryptocurrency, has received legal tender from two countries
Underlying technology and working
Blockchain technology
Cryptocurrencies are developed on the blockchain platform. Blockchain can be defined as a shared state-of-the-art public ledger that keeps record of crypto transactions. The decentralized infrastructure of blockchain technology helps to operate cryptocurrencies in a decentralized manner- i.e. without the intervention of any centralized authority. In fact, this is one of the main differences between fiat currency and cryptocurrency. Fiat currency is always governed by a centralized authority that controls transactions made through fiat. But, crypto follows a P2P direct transaction approach that is devoid of any intermediary.
How are cryptos generated?
Well, cryptocurrencies are generated through a process called “minting”. As they are digital assets, you cannot print them out on bills like fiat currencies. As of now, they are two ways to create or mint cryptocurrencies- mining and staking.
The type of minting is determined by the consensus mechanism of a blockchain platform.
If it’s a Proof-of-Work (PoW) consensus mechanism, you will have to opt for “mining” to generate cryptocurrencies. The mining process requires miners to solve a complex mathematical equation to find the correct hash to add a fresh block into the existing blockchain. The first miner to find the correct hash is rewarded with new coins. Bitcoin runs on PoW and is minted through mining.
The other consensus mechanism is Proof-of-Stake (PoS)- a faster and more affordable process than PoW. Unlike PoW, PoS does not involve mining. Rather, the mechanism helps to generate new coins through the process of “staking”. In staking, crypto owners stake a certain amount of coins following which the protocol chooses a validator. The validator is entrusted with the task of verification of transaction data on blocks. If it’s accurate, the block is added to the blockchain, and the validator gets new coins as a reward.
Key features of cryptocurrencies:
- Decentralized
- P2P transaction
- Anonymity
- Secured by cryptography
- Crypto transactions are always irreversible
- Universal currency that can be used all across the globe
- Extreme volatility can cause extreme downswing and upswing any moment
How do you use cryptocurrencies?
As payment mode
Riding on accelerating popularity as an electronic payment mode, cryptocurrencies are fast becoming a favourite payment option, especially among online traders and e-Commerce merchants. Today, you can use crypto payments in a wide range of industries, including but not limited to retail, tech, luxury goods, automobile, food and beverage, travel and hospitality, games, and so on. Cryptocurrencies are now also used in the insurance space.
For HODLing
Added to being a viable mode of payment, cryptocurrencies also qualify as “store of value”. In fact, most of the cryptocurrencies assure high yields on long-term investment. HODL (Hold On For Dear life) is a philosophy that requires you to hold on to your cryptocurrencies for a long time and then sell them when the market shows a surge after a specific time period.
For Day Trading
If you are looking for quick returns in the short term, you can also use cryptocurrencies for day trading. You can execute day trading easily through crypto exchanges.
For staking
You can earn handy passive income by staking cryptocurrencies.
Staking is a process where cryptocurrency owners stake their coin for verification of transactions. As a blockchain platform needs staking to add fresh blocks to the chain, the portal rewards stakers with a certain commission.
For NFT and Metaverse projects
Cryptocurrency is the exclusive payment method for buying NFTs. You will also need cryptocurrencies if you have to make purchases in Metaverse projects.
For gifting
Even if there are debates about whether crypto has entered mainstream, it is certain that cryptocurrencies are fast approaching the mainstream economy. Today, cryptocurrencies are used in almost all the same ways you use fiat currency. Apart from payment and investment, cryptocurrencies have scaled up as a fantastic gift option as well these days. The high yield aspect of the digital asset makes it a treasured gift. If you receive crypto as a gift you can HODL it for a certain period of time and sell it when the market is right.
How do you purchase cryptocurrencies?
You can always purchase cryptocurrencies from crypto exchanges. Just like stock exchanges, crypto exchanges allow you to buy, trade, and sell cryptocurrencies. Before choosing an exchange, just make sure the exchange accepts users from your countries. Then, the exchange should also feature a user-friendly trading interface. Be more careful when it comes to the security aspect of the exchange. A reliable exchange assures all advanced security features like 2 Factor Authentication and insurance for funds.
Otherwise, you can purchase cryptocurrencies from brokers. Additionally, you have online P2P exchanges where you can purchase cryptocurrencies.
How do you store cryptocurrencies?
Crypto exchanges generally offer the option to store cryptocurrencies in their in-built wallets. You can store some amount there for day trading but not the entire sack. The safest place to store cryptocurrencies is cold hardware wallets.
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