What is a cryptocurrency?
Cryptocurrency is an alternative to traditional fiat money. Many consider Bitcoin to be the ancestor of cryptocurrencies, but in reality they have existed long before Bitcoin was developed. For a variety of reasons, previous versions just haven’t been successful, and it wasn’t until Bitcoin that cryptocurrency became a more widely known concept to the general public with Meme Coin.
The cryptocurrency is separate from the traditional economic system. Central banks or others do not control the operation of crypts. Cryptography is used to confirm transactions and encrypt user accounts, as well as to maintain foreign exchange reserves. As has been said, there are currently a vast variety of cryptocurrencies in the world, up to more than 17,000. Almost all of the cryptocurrencies on the market are based on open source code.
The cryptocurrency may sound utopian to some because it is a fully digital currency. However, even today, traditional fiat money is almost entirely digital, with less and less cash being used all the time.
How do cryptocurrencies work in practice?
To understand cryptocurrencies, you must first understand how block chains work. The first block chain introduced was Bitcoin. Let’s use the Bitcoin block chain as an example:
New blocks in a block chain are created by quarrying. The miners are servers connected to the Bitcoin network, ie computers that try to maintain Bitcoin’s computing power and solve the so-called mathematical puzzles. Whenever one of these thousands of computers succeeds in solving a riddle, a new block is formed and the computer owner is rewarded with a certain amount of Bitcoins for successful mining (currently a reward of 6.25 BTC per block) and in addition, the Quarry receives transask fees for all Bitcoin transfers to the block. See Image below.
A certain number of Bitcoin transfers are always stored in the excavated block, which are locked to the block and cannot be changed afterwards. Locking takes place by means of summaries made of blocks, in which case the summary from the previous block always moves to the next block. If you want to change the database of one block, you should also make a change to the summary in the block and thus also to the previous blocks. This is a virtually impossible task and this is what makes block chains reliable and safe.
Why was the cryptocurrency developed?
Cryptocurrencies were established e.g. against inflation. Where ordinary fiat money can be printed indefinitely and inflation gnaws at its value, there are often only a certain limited amount of cryptocurrencies that cannot be changed retrospectively. For Bitcoin, the figure is 21 million, of which more than 90% is currently mined.
In addition to the inflation aspect, cryptocurrencies were created to eliminate intermediaries as well as trust between different companies. Bitcoin, for example, was created in a good seam in 2008-2009, when the financial crisis had just recently eroded confidence in the general banking system.
In addition to these, cryptocurrency is a programmable currency, and virtually everything can be automated and services implemented without third parties. This would help speed up the implementation of services and save on costs.
The popularity of cryptocurrencies has started to rise sharply because cryptocurrencies are virtually uncentralized. One party cannot decide things and create its own conditions for action, but everything works completely automatically and decentrally. Accounts have been removed from social media, which would not be the case with blocked social media. Central banks could not just decide to now print money from scratch and accelerate inflation if the blockchain was programmed to prevent this.
Of course, it should be noted that there are different cryptocurrencies, such as Dogecoin , where 10,000 more cryptocurrencies are generated indefinitely. That is, such cryptocurrencies also exist. The limited amount (or unlimitedness) can be found, for example, on Coinmarketcap.com, where for each cryptocurrency there is a “Bitcoin Supply” section showing the number of cryptocurrencies mined so far for that cryptocurrency and a “Max Supply”. this means that there is no maximum amount.
What is the best cryptocurrency?
A different cryptocurrency is always suitable for different uses, this is good to keep in mind. When choosing the most suitable cryptocurrency currency, it is a good idea to consider your own risk tolerance, investment horizon and strategy. At least for the time being, at least for the time being, there are no similar tools or key figures for cryptocurrency comparison and valuation as for analyzing stocks. The price development of cryptocurrencies is not driven by any of the companies behind them and its financial success.
The best known and most successful are probably Bitcoin and Ethereum . Of these two, Bitcoin is a traditional virtual currency, but Ethereum is also a smart contract platform. Ethereum is often classified in the platform category. The virtual currency associated with Ethereum is actually called Ether, but the vernacular usually speaks of Ethereum.
Bitcoin accounts for about 65% of the total cryptocurrency market, so it can be said to be the largest cryptocurrency. Bitcoin has a strong brand and is familiar to almost everyone today, at least to some degree. Bitcoin is now even called the gold of cryptocurrencies, and many major investors and institutional investors have already invested in it. The market value of Ethereum is lower than that of Bitcoin, but its popularity has risen much in recent years in the wake of Bitcoin.
Other popular and well-known cryptocurrencies include Ripple , Litecoin and Stellar Lumens. Ripple is both a cryptocurrency and a payment system. The cryptocurrency associated with Ripple is now referred to as XRP, and Ripple usually refers to the payment system. Litecoin can be placed in the same category as Bitcoin , as it is also a traditional cryptocurrency without any associated programming language or other. It is intended to be a store of value and digital money. Stellar Lumens once separated from Ripplen and today aims to solve global money transfer problems. So it is a kind of global payment system.