Did you know that El Salvador has adopted Bitcoin as legal tender? Have you also heard that a cryptocurrency ATM was installed in Honduras last month, allowing easy transactions with Bitcoin and Ethereum?
Cryptocurrency has certainly made headlines recently, and it is not surprising that many people found themselves interested in this form of digital currency. So, what is cryptocurrency all about? Here’s what you need to know.
Cryptocurrency, or simply crypto, is a new type of digital money that you can use to pay for products or services on digital channels. This is the very same manner through which you use traditional fiat currencies that are transferred electronically. However, unlike traditional currency, crypto is not mainstream and may only be used for transactions with certain suppliers/platforms. It is decentralised and can be obtained through ecommerce, cryptocurrency trading or mining.
The defining trait of cryptocurrency is its decentralised nature. No single group or individual is in charge of it, unlike traditional money that banks and relevant government agencies control. Instead, it relies on blockchain, a technology that stores data in blocks chained together in chronological order.
Blockchain is basically an ever-growing list of records stored in blocks which, when filled to their maximum capacity, are linked to a previously filled block, essentially forming a chain, hence the technology’s moniker. Unlike traditional databases, the data in these blocks are securely stored in individual users’ computers called nodes instead of a single server. In the context of cryptocurrency, this means putting independent users in control of their digital money. When buying or selling in cryptocurrency, the crypto network validates the blockchain data and confirms the transaction.
The decentralisation of cryptocurrency makes it a highly trustworthy medium of exchange. Without a central authority controlling it, its regulation depends on a democratic process involving all the cryptocurrency holders. Additionally, all blockchain transactions can be viewed through personal nodes or blockchain explorers, allowing for complete transparency that can eliminate fraud and corruption.
There are three ways through which one can obtain cryptocurrency units, namely:
1. Ecommerce
If you are selling something on the Internet, you can obtain crypto by simply accepting it as a mode of payment. This should not take much effort from the business owner’s end, as cryptocurrency networks like Bitcoin provide payment gateways that you can integrate into your online store. You can also use a point-of-sale app to send or receive cryptocurrencies via any device.
2. Cryptocurrency Trading
Crypto trading has been around for quite some time now, and it works in pretty much the same way as trading stocks. Trading is often done via a contract for differences (CFD) account or through direct exchange, and it involves speculating the movement of a cryptocurrency’s value. Like in stock trading, the mantra of making money through crypto trade is “buy low and sell high.”
3. Mining
Cryptocurrency mining is what we call the process through which new cryptocurrency units are put into circulation. Miners solve complex cryptographic problems through powerful computers, verifying data blocks in the process and adding to the cryptocurrency blockchain. Mining is basically a way to earn new crypto units without investing any amount of money in trading. However, it requires an ultra-powerful computer built to deal with the infinitely-increasing complexities of the cryptographic equations necessary to obtain new cryptocurrency units.