Since cryptocurrencies were introduced more than a decade ago, there has been a lot of speculation about their legitimacy and longevity. With this technology becoming more and more legitimized and successful, cryptocurrency is on the path to being accepted in the mainstream as an everyday form of currency.
Learn more about this fascinating technology, including where it started and where it may be heading in the future.
1. What is cryptocurrency?
Cryptocurrency is a digital currency; instead of being managed by a traditional financial institution, cryptography secures it. Cryptography hides information in codes, so in finance, it ensures the legitimacy of transactions and prevents counterfeiting or double-spending.
As we move more and more into a digital world with higher and higher security risks online, cryptocurrency is a safe and convenient way to transfer money between friends and family or, more and more often, to spend safely online.
How did cryptocurrency start?
Modern cryptocurrency got their start during the 2008 worldwide financial crisis with the introduction of Bitcoin. It was first explained in a white paper published that year under the pseudonym Satoshi Nakamoto. Bitcoin was released to the public early the following year.
Since then, many other cryptocurrencies have sprouted up to ride the Bitcoin wave into the future of currency.
What are the key advantages of cryptocurrency over traditional currencies?
One of the driving factors behind creating modern cryptocurrency is to avoid a central point of failure by depending upon a financial institution for security. By relying on its own blockchain system, cryptocurrencies are self-regulating systems.
Cryptocurrencies are also highly secure, and every crypto transaction is recorded publicly in blocks for verification and detailed record keeping. Additionally, they offer 24-hour access to funds, transactions are processed in minutes or even seconds, and there is no limit to the amount that can transfer at one time.
What are some of the different types of cryptocurrency?
Soon after its public release in 2009, other cryptocurrencies piggybacked off the Bitcoin idea and the technology that backs it up. Today, there are more than 5,000 different cryptocurrencies available online, including Litecoin, Ethereum, Z-cash, Cardano, and Dogecoin.
While many cryptocurrencies swiftly rose and fell flat, eventually they began to stabilize in the market. The major exchanges offer stability similar to that of the stock market, with steady climbs and expected declines over time. Overall, they are on a distinctly upward trend.
Most cryptocurrency has a built-in limit for the number of coins produced, forcing scarcity upon the currency to avoid issues with inflation.
2. What is the technology behind cryptocurrency?
What is more exciting than cryptocurrencies is the technology behind them. It involves cryptography which encrypts information and decrypts it for secure communication. The data is encrypted using an algorithm, a public key (like a username that can be shared), and a private key (which acts like a very secure signature) for verification.
Cryptocurrencies utilize cryptography to protect the information about transactions. Other secure data is communicated in this way because it is highly secure and self-regulating. In the future, we could see things like medical information exchanged this way.
What is the role of blockchain?
A blockchain is a running list of all transactions that a specific cryptocurrency has processed.
When a transaction starts, it passes through the algorithm and is authenticated with the sender’s private key; next, the transaction is verified by the network using public keys before it is finally added to the blockchain.
Once added to the blockchain, there is no way to remove the transaction record since every future transaction depends upon this continuous chain of information.
How does mining for cryptocurrency work?
In order to verify transactions with public keys, the cryptocurrency sends the transaction out to a network where miners use specialized computers to solve the equations that verify transactions.
The miner receives cryptocurrency as compensation after they verify and add it to the blockchain. The equipment for mining can be expensive to acquire and power 24 hours per day, but the rewards for solving a blockchain make it well worth the investment for people in the crypto network.
3. How can you spend cryptocurrencies?
Cryptocurrency value depends on the scale of community involvement, similar to how stocks in the stock market have value. People have to use cryptocurrency for it to be valuable. Much like choosing to accept Visa or Discover, companies can accept cryptocurrencies as a form of digital payment.
What major retailers currently accept cryptocurrencies?
Many well-known retailers accept Bitcoin and other cryptocurrencies just like cash or credit. Some of these prominent brand names include Microsoft, Overstock.com, Home Depot, Starbucks, Whole Foods, and BMW.
Where can you use crypto debit cards?
For other retailers who do not yet accept cryptocurrencies directly, you can always transfer your cryptocurrency onto a prepaid crypto debit card to be used anywhere in the world that accepts cards. This opens up a world of possibilities for your cryptocurrency to be used for pretty much anything and everything you could imagine.
4. More companies are getting on board with accepting cryptocurrency every day
Cryptocurrency has proved its longevity and security over the course of a decade, and is poised to launch into mainstream use at any moment. One day in the very near future, you might be paying for everything from a beer at your local watering hole to your insurance premium with convenient and secure cryptocurrencies.