As an evolving concept in the digital space, it has been difficult for many people to wrap their heads around what cryptocurrency is all about. While some have given in to the supposed complexity of the concept, others just are not getting it.
As complicated as the term seems to be, it is gaining popularity among multitudes in the digital world. This is a result of the exciting and vast nature of the cryptocurrency world. However, it can be overwhelming, demanding, and a bit confusing if you are a beginner.
It is an investment medium with the potential of making you a millionaire within the shortest period. Notwithstanding, it is also known for volatility, liquidity, and high risk. Making profits or loss there all comes down to some factors which will be discussed later.
In this article, you will be introduced to cryptocurrency, how it works, why it is growing wider, and whether you should dive into it or not.
What is Cryptocurrency?
Cryptocurrency is a virtual or digital currency which is secured by cryptography making it impossible to be double-spend or forged. The first ever known cryptocurrency is eCash which was proposed in form of electronic cash by the American cryptographer, David Chaum, in 1983.
Many available cryptocurrencies are decentralized and are launched on blockchain technology. By “decentralized”, activities involving cryptocurrency are controlled by several local and individual entities rather than single authorities.
With that being said, cryptocurrencies are not issued by any government agency or central authority. This makes them invulnerable to government interference, dominance, or manipulation. Yet, government regulations can still directly or indirectly influence the crypto world.
One of the reasons why cryptocurrency grows so fast is due to the faster and cheaper transaction processes. Also, since it is a decentralized ecosystem, the failure in one region doesn’t have much influence on the other. In simple terms, if one currency fell through, there is a possibility that others won’t.
High energy consumption during mining, fraudulent and criminal activities, and price volatility, are some of the disadvantages of cryptocurrency. Anyway, there are more reasons to consider cryptocurrency than there are to neglect it. There is no such road that has no obstacles, except it doesn’t lead anywhere.
How does Cryptocurrency work?
The term “crypto” refers to the varieties of cryptographic practices and encryption algorithm that are put in place to safeguard these currency types. Some of these security systems include hashing functions, public-private key pairs, 2-factor authentication, elliptical curve encryption, etc.
Since these digital currencies are underpinned by cryptographic systems, it becomes easier to look over the security of online transactions without the need for any intermediaries (third-party). You either mine or purchase cryptocurrency and this can be done on several exchanges available like Binance, Coinbase Exchange, FTX, AAX, Opensea, etc.
Over the years, several developments have happened in the crypto world. Some of these include adoption as a payment method on many e-commerce sites, and regulation and licensing of brokers and retail traders, among others. However, they are hardly used for retail transactions since not everyone has access to the least requirement, like a digital wallet.
They are widely used in cross-border and international transactions and are the most popular as trading instruments. The value of cryptocurrencies can skyrocket or plummet depending on factors like exchange rates, economic problems, global significant happenings, etc.
For example, the announcement made by the Ukrainian government on the acceptance of cryptocurrency as international aid sees to the increased value of cryptocurrency as of then.
Advantages of Cryptocurrency
1. Protection from Inflation: Inflation is general the rise in the price of goods and services in the market. As much as the value of cryptocurrencies fluctuates, it is still a stable currency when compared with traditional currencies. As the value increases, there will be more demand which prevents inflation.
2. Self-governed and managed: The development of any currency depends on how it is maintained and governed by the responsible bodies. Cryptocurrencies are stored and maintained by a decentralized body of miners and developers. Each exchange platform is made immutable, ie they keep transaction records over a long time.
3. Decentralized: Unlike fiat or traditional currencies controlled by central governments, cryptocurrencies are decentralized. The term “decentralized” in the metaverse is used to describe a platform which is not controlled by a single entity but by several entities that control and contribute to its growth.
4. A fast way to transfer funds
5. Easier currency exchange
6. It saves the cost of the transaction
Disadvantages of Cryptocurrency
1. Its anonymity feature makes it a spot for money laundering and other illegal financial activities.
2. Losing any details of one’s digital wallet will result in the loss of all the available money in the wallet. For example, if you forget your private key, you will not have access to the wallet again.
3. As recently experienced on Binance, cryptocurrency exchanges are susceptible to hacking and other fraudulent activities from third parties. If a scammer has access to your wallet by hacking through it, all your investments can potentially be carted away.
There are several disadvantages as much as there are advantages to engaging in cryptocurrency. All you need to do is make your reasons clear. You should define a clear purpose for why you’re joining the platform. This will prevent you from falling into unknown hands or wandering in the vast empire of cryptocurrency.
Whether cryptocurrency is for you or not is a matter of time. But then, you should stay away from the noise in the industry and make your careful research and background check. It is a promising industry if you’d ask me, especially with the integration of web3 and the evolution of non-fungibles.
Metaverse, Web3, Blockchain, NFTs, and several other technical terms in this content will be explained in detail in subsequent articles.
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Cryptocurrency made Easy: A Comprehensive Beginners’ Guide to Cryptocurrency was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.