Many of you have probably heard about cryptocurrency, but not everyone fully understands its essence and purpose. In this article we will understand what cryptocurrency is and how it can be used.
What is cryptocurrency?
Cryptocurrency is a digital currency that uses cryptography to secure transactions and control the creation of new units. It operates on the basis of decentralized blockchain technology that allows network participants to verify and validate transactions without the need for centralized management.
Blockchain is a distributed database that stores transaction information and ensures its security and integrity. Each block in the blockchain contains information about the previous block, creating a chain of blocks (hence the name blockchain). When a transaction occurs, it is recorded on the blockchain and passed to other participants in the network who verify its authenticity. If the transaction is authentic, it is added to the blockchain and the user receives their cryptocurrency.
How can cryptocurrency be used?
Cryptocurrency can be used for a variety of purposes. Let's discuss some of the most well-known ways:
Investing
Cryptocurrency can be used to invest in various assets such as other cryptocurrencies, stocks and real estate. Cryptocurrencies can have great potential to increase in value in the long run. For example, in the case of considering investing in Bitcoin as the most well-known cryptocurrency with a long history and limited issuance. However, you should realize that investing in cryptocurrency also involves risk. The price of cryptocurrency can change significantly.
Money transfer
Cryptocurrency can be used for international money transfers with low fees and without the need to go to a bank. Cryptocurrency transactions can be performed 24 hours a day, 7 days a week, without weekends and holidays.
Storing money
Cryptocurrency allows you to store money digitally without having to go to banks or other financial institutions. You don't have to fear that the bank will freeze your account. It can also be especially useful for people living in countries with unstable economic and political situations, where the national currency can quickly lose its value.
Purchase of goods and payment for services
Cryptocurrency can be used in circumstances where bank card payments are not available. Such transactions can take place almost instantly, without having to wait for a bank or payment system to process the payment. Cryptocurrency payments can be made anytime and anywhere there is a network. Also important is the fact of complete privacy, as transactions are done anonymously. Cryptocurrency payments are usually associated with lower fees because there are no intermediaries such as banks or payment systems that take their own fees for processing transactions.
Charity
Cryptocurrency can be used for charitable donations. It allows donations to remain anonymous, which can be important for people who want to be anonymous but still want to help.
Speculation
Some investors buy cryptocurrency in the hope that it will rise in value and then sell it for a profit. Unlike traditional financial instruments, cryptocurrency prices can change very quickly and often depend on market sentiment and news events. This opens up a wide range of opportunities for trading and speculating on price changes. It is important to realize that speculating on cryptocurrencies involves high risk.
Types of cryptocurrencies
Cryptocurrencies can be in many forms.
Coins
Cryptocurrencies that run on their own blockchain platform and have their own set of rules and protocols.
Bitcoin (BTC)
Is the first cryptocurrency, has a unique status and does not fall under the categories of other cryptocurrencies. The maximum number of bitcoins that will ever be created is limited to 21 million. Bitcoin can be easily exchanged for other cryptocurrencies or for fiat money such as dollars or euros, and is seen as a digital alternative to fiat currencies and gold.
Altcoins
The term “altcoin” comes from the English term “alternative coin”. All cryptocurrencies except Bitcoin are altcoins because they use their own blockchains.
Altcoin examples:
Ethereum (ETH)
Ethereum (ETH) is the second largest cryptocurrency by market capitalization after Bitcoin. Vitalik Buterin is considered the creator of Ethereum. Ethereum was the first blockchain that supported the creation and use of smart contracts. The basic idea of smart contracts is that they allow two parties to make a transaction without intermediaries and guarantee its fulfillment. They are the basis for creating decentralized applications on the Ethereum blockchain. ETH is a platform for creating your own tokens, which makes it popular among developers who want to create their own cryptocurrency.
Litecoin (LTC)
A cryptocurrency that was created by Charlie Lee in 2011. Litecoin was based on the Bitcoin source code, but with some improvements. The goal was to create a faster and more accessible version of Bitcoin for miners. Litecoin, like Bitcoin, can be mined. Miners can use more affordable mining equipment compared to mining Bitcoin. The maximum number of coins in circulation is 84 million. Litecoin transaction processing time is about 2.5 minutes. The faster transaction time and more affordable mining has made Litecoin very attractive.
Cardano (ADA )
A cryptocurrency and blockchain platform that Charles Hoskinson, Jeremy Wood (Input Output Hong Kong (IOHK) started developing in 2015. In 2017, the platform was officially launched. The name Cardano comes from the Italian mathematician Gerolamo Cardano, who was known for his work in algebra and probability theory, which is related to the scientific foundations behind the Cardano project. One of the key principles of Cardano is the emphasis on research and scientific approaches to development. Cardano is characterized by high transaction speeds. Charles Hoskinson claims that the platform is much more energy efficient than its competitors. The maximum number of coins of Cardano cryptocurrency (ADA) is 45 billion. A special feature of Cardano is its strategic approach to cooperation with government and regulatory bodies.
Ripple (XRP)
Ripple (XRP) was launched in 2012 by a team of developers from Ripple Labs who sought to simplify and speed up the process of global financial transactions. Ripple uses proprietary blockchain technology, but unlike many other cryptocurrencies, it does not use mining. The issuance of XRP is limited. The quantity is limited to 100 billion. All coins were issued at the launch of the network. The smallest unit of XRP is the drop. 1 XRP consists of 1,000,000 drops. They are used to facilitate the transfer of very small amounts of money between network members, as they allow very small fractions of XRP to be sent and received. However, in most cases, people use full units of XRP for transactions. It is important to know that XRP provides a high level of security and reliability for transactions, but does not guarantee complete anonymity and privacy.
Tokens
Tokens are digital assets that do not have their own blockchain. Most cryptocurrency tokens are built on other blockchains, such as Ethereum, which provides a platform for creating such tokens. The most important difference between tokens and coins is that coins have their own blockchain, while tokens are built on existing blockchains.
Tokens can represent anything from physical assets such as gold or real estate to financial instruments such as stocks or bonds. They can be sold or exchanged for other tokens, cryptocurrency or fiat money on cryptocurrency exchanges. They are similar to stocks on a stock exchange, where companies guarantee investors certain rights and privileges, as well as fulfillment of obligations.
Let's take a look at the different types of cryptocurrency tokens and their features.
Stablecoins
Are digital assets linked to real assets such as national currencies or precious metals. They are created to minimize the volatility of cryptocurrencies and create stable digital assets. Stablecoins can be exchanged for other cryptocurrency or real assets.
Here are some examples of stablecoins:
Tether (USDT)
The most popular stablecoin, which is pegged to the US dollar at a 1:1 ratio.
USD Coin (USDC)
A stablecoin created by Circle and Coinbase that is also pegged to the US dollar.
Binance USD (BUSD)
It is a stablecoin created by Binance that is also pegged to the US dollar.
TrueUSD (TUSD)
Stablecoin, which is also pegged to the U.S. dollar and uses auditors to provide transparency about its reserves.
NFT (non-fungible token)
A digital asset that is used to represent unique and non-repeatable objects such as art, music, videos or game items. Each NFT has a unique code and cannot be replaced by another token. This makes NFTs especially valuable because it represents digital authenticity and uniqueness that cannot be copied or tampered with. With NFTs, you can establish ownership of digital assets and use them to sell, trade, or collect them. One of the best known platforms for creating and trading NFTs is Ethereum.
For example, there was a case in which Twitter co-founder Jack Dorsey sold his first tweet for almost $3 million as an NFT.
As an example of the first popular NFT CryptoPunks (cryptopunks) collection. Its collection contains 10,000 images that were released in 2017 on the Ethereum blockchain. The most expensive punk was sold for 8,000 ETH (at the time of the transaction, the value was equivalent to $23.7 million).
DeFi tokens
DeFi (Decentralized Finance) uses blockchain to create decentralized financial products and services. DeFi tokens are digital tokens used in the DeFi ecosystem.
DeFi tokens are unique digital assets used to perform various functions related to the DeFi ecosystem, including lending, exchanging, storing and staking. Unlike traditional financial instruments that are managed by centralized institutions, DeFi tokens allow users to access financial services without intermediaries, ensuring transparency and security.
DeFi tokens can be used to grant credits. They can also be used to make exchanges with other tokens, as well as to participate in voting and decision-making related to the development of projects.
One of the main advantages of DeFi tokens is the ability to generate income through token steaking and storage. This can be particularly attractive to investors who are looking for high returns and are willing to accept a high level of risk.
DeFi's main goal is to offer an alternative to the banking sector and replace the traditional technologies of the current financial system with open source protocols.
The most popular DeFi project is MakerDAO, a decentralized autonomous organization (DAO) that created the first decentralized stable token DAI on the Ethereum blockchain. DAI is a stable token that is pegged to the price of the U.S. dollar, meaning its value is not subject to significant fluctuations like other cryptocurrencies. MakerDAO has created a system that allows users to access borrowed funds in DAI by pledging their cryptocurrency assets. Users can use the proceeds to purchase other cryptocurrencies, pay for goods and services, or for other purposes.
In our opinion, this is a new milestone in the development of digital payments, and maybe the entire financial system.
On our website you will find information about crypto exchanges around the world where you can exchange Bitcoin and other cryptocurrency for cash (dollars, euros, rubles) and back easily, quickly and safely.
