What is cryptocurrency? Everything you need to knowOct 3, 2022
Today the world of cryptocurrency has become a global phenomenon familiar to most people. If you're interested in this sphere, this article will be helpful in understanding this digital world and its role in the global economic system.
What is cryptocurrency?
In fact, cryptocurrency is a digital equivalent of money secured by cryptography. It is based on a decentralized network that is distributed across a large number of computers.
You have exactly heard of the most popular currencies like Bitcoin and Ethereum, but do you know that there are more than 21000 of them?
Unlike Dollar or Euro, cryptocurrency runs without control of any central authority like a bank or government. Moreover, the power can be spread amongst the community of each cryptocurrency.
With the help of digital currency people can buy regular goods and services, send funds without third-party intermediaries, invest in it as they would in other assets, like stocks or precious metals.
How does it work?
All the crypto transactions are held by an open, distributed ledger that is called a blockchain. In practice, it's like a checkbook that's distributed across countless computers around the world.
Blockchain is the key infrastructure that powers the whole crypto industry. It is a chain of blocks, every of which holds individual transaction information. Before creating a new block in the blockchain each transaction must be processed by cryptocurrency consensus mechanism (proof of work or proof of stake).
Proof of Work vs. Proof of Stake
Proof-of-work (PoW) and proof-of-stake (PoS) are the two most popular consensus mechanisms for processing transactions and creating new blocks in a blockchain.
PoW is a method of verifying transactions in which an algorithm provides a mathematical problem that computers race to solve.
A high-powered computer, often called a "miner," solves a mathematical puzzle that helps a block and then adds them to the blockchain ledger. The first computer that does it successfully receives digital currency as a reward.
PoS is an energy-efficient verification method of checking transactions. While PoW mechanisms require miners to solve cryptographic puzzles, PoS - check transactions with the help of validators. To become a validator, a user must "stake" a specific amount of coins.
The reward depends on how much of an asset the participant has committed and how long they have been staking for.
What is cryptocurrency mining?
Mining is a process of reward gained from verifying transactions on a blockchain with PoW mechanism.
These days, you need specialized and expensive computer hardware to mine quickly enough to solve the puzzle before other miners and receive a reward. In fact, entire businesses are created to mine cryptocurrency and profit from the rewards.
Types Of Crypto: Coins and Altcoins, Tokens, Stablecoins
All crypto assets are divided into two groups: coins and tokens. Many users are sure that these two words are synonyms. But in fact there is a great difference:
Coins are the digital equivalent of money that uses its own separate and independent blockchain. The most famous example is Bitcoin. It is based on blockchain — a digital database or ledger that is distributed among the nodes of a peer-to-peer network. All the data is stored collectively and shared between participants of the blockchain network.
Coins have the same characteristics as money: they are interchangeable, transportable, durable, and have limited supply.
Like coins, tokens are also digital assets, which are created on the basis of an existing blockchain or platform. They are used for different purposes. According to their purpose, tokens can be divided into several types, one of the most popular is Stablecoins.
Stablecoins are assets that try to pin their market value to some external reference. People often name them a "digital dollar", as they can be pinned to a currency.
Stablecoins are a useful tool as a medium of exchange.
How To Buy/Sell Cryptocurrency?
Buy Crypto via a Reputable Exchange
Various crypto exchanges such as Coinbase, Kraken, Binance, and OKX are offering to purchase BTC with a bank card.
It should be mentioned that the largest exchanges are often centralized and may restrict trading activities and lock your funds anytime. So exchanges definitely are not a go-to for your long-term holdings.
Buy Crypto right from your Wallet
Many digital wallets today offer great functionality and have an in-built purchase option.
It allows you to avoid fees for transferring funds into your wallet from exchanges and any additional friction in the buy-store journey.
Also in many wallets you can find such features:
- Buy/Sell option
- Asset statistics in Portfolio
- Full transaction history tabs
- Customizable commissions for sending coins
How to Buy Crypto for Fiat Money in Arctic Wallet
You can buy all the popular cryptocurrencies with a credit or debit card directly from your Arctic Wallet mobile or desktop App in a few steps:
- Tap the "dollar sign" at the bottom menu of your mobile application;
- Select the cryptocurrency you want to deposit to your wallet;
- Choose the fiat currency to exchange for crypto: Arctic Wallet allows buying crypto with USD, EUR, and GBP;
- Press "Buy" and follow the instructions on the payment page that opens.
|Arctic Wallet Android App|
How To Store Cryptocurrency?
Essentially, you do not own your crypto until you hold it in your crypto wallet. So always store it in a reliable hardware or software wallet. As opposed to exchange wallets, non-custodial ones give you full ownership over your funds and private keys. Considering this, buying crypto right from the wallet may be a great option.
How Can You Use Cryptocurrency?
Now there are a number of goods and services that you can purchase with crypto, but most people use it as an alternative investment option outside of stocks and bonds.
The cryptocurrency market has turned into a powerful financial ecosystem focused on the deflationary direction. The main question is "Is it too late to buy cryptocurrency?". If you're one of them - take a look at Bitcoin: most crypto enthusiasts are sure that after the crypto winter the Bitcoin price will be at levels of 100 thousand dollars. It may sound fantastic, but few people believed in 68 thousand for BTC. Look carefully at the Bitcoin price chart and the answer to the question: "Is it too late to buy?" will be found right away.
Our main advice: don't invest all our funds into crypto straight away. Start investing with a small amount, try to learn and understand more and be excited about the technology.