The term “cryptocurrency” or “crypto” is any form of currency that exists digitally or virtually and uses cryptography to secure transactions.
Cryptocurrencies don’t have a central issuing or regulating authority, instead using a decentralised system to record transactions and issue new units.
Includes endless definitions. However, one of the most accurate is that a cryptocurrency is a virtual currency created thanks to a computerised code. Similarly, a cryptocurrency is a string of data indicating a unit.
The main difference between the latter and conventional currencies is that cryptocurrencies are completely decentralised, that is, they are not controlled or supervised by any government, they are monitored by a P2P Internet protocol (which we will talk about later).
These digital currencies are created through a process called “mining”, where the miners add the records of the operations that are carried out to the public ledger of a certain cryptocurrency. All transactions occur immediately on each of the platforms and are added to the public ledger, where they can be viewed by anyone on the network.
Once the miner confirms the transaction, it becomes effective and cannot be returned, canceled or falsified.
To truly understand what cryptocurrencies entail, it is necessary to know the revolutionary, transactional and monetary properties that have positioned them as one of the best assets to do business with. In this guide we explain each of them so that you can clarify all your doubts.
Revolutionary Properties of Cryptocurrencies
The revolutionary properties are the main difference between cryptocurrencies and conventional currencies. As we mentioned before, the latter are under the supervision of the government of a country or a central bank that governs supply and demand according to its criteria and that can view the database or change the rules without reaching a consensus between the two. parts.
For their part, cryptocurrencies are not under the control of anyone, they are simply governed by the credibility maintained by their users.
In turn, cryptocurrencies have managed to maintain consensus thanks to strong cryptography (from which their name derives) that allows them to guarantee their security based on mathematics. All this has resulted in cryptocurrencies being considered as an alternative to regular currencies.
Transactional Properties of Cryptocurrencies
Irreversibility
Any transaction that includes cryptocurrencies is irreversible. After the validity of the transaction has been confirmed, no changes can be made. This includes any government entity, the creators of the cryptocurrency with which it is operated or the miners, who will not be able to reverse the transaction under any circumstances.
Confidentiality
The use of cryptocurrencies for lawful purposes is done anonymously. That is, user accounts and transactions will never be linked to their identity in the real world. In the case of Bitcoins, a chain is used that contains approximately thirty digits and that complies with being the address where the cryptocurrencies will be sent or received, better known as a wallet or “wallet” for its English translation. Users can rest assured that no personal data will ever be in the public domain.
Speed
It will only take a few minutes for the cryptocurrency transaction to be confirmed and effective.
Global Reach
You will be able to send or receive cryptocurrencies from wherever you are, thanks to the fact that the cryptocurrency network is in operation worldwide and allows the use of any computer to enter it.
Unmatched Security
The cryptography with which cryptocurrencies operate ensures the funds that correspond to each of the users. In turn, these are the only ones who can access using their private key. This cryptography system is considered unbreakable in all the aspects that make it up.
No Restrictions
You can use the cryptocurrencies for the activity you want, as long as it stays outside the law. It is not necessary to process a permit to use the Bitcoins you acquire, for example. You could download a platform or cryptocurrency market of your choice (and for free) to start exchanging them however you like, from anywhere in the world and without prior authorisation.
Monetary Properties of Cryptocurrencies
Controlled Supply
The supply of cryptocurrencies is controlled, unlike conventional currencies. To control it, they use schedules that are written in their codes, which allows the supply of any of them in the future to be estimated in real time. Such is the case of Bitcoin, which decreases its supply as time goes by.
Without Debt
The existence of cryptocurrencies is completely real, they represent themselves and are not created out of debt, as is the case with fiduciary money.
How do Cryptocurrencies Work?
Each of the transactions that are carried out are sent between peers from the wallets of the people who are involved in the transaction, just at the moment in which the public codes coincide.
These public codes are related to each of the private passwords or cryptographic keys created by users and ensure that each transaction reaches the other person’s digital wallet.
Then, the transactions that were made are recorded in the public ledger, better known as “Blockchain” or in Spanish: chain of blocks. Any user who is part of the same cryptocurrency will be able to access the ledger, as long as they have downloaded a full node wallet instead of a virtual wallet, such as Coinbase.
The reason why it is considered a “blockchain” is because, every time a user receives or sends a cryptocurrency, either through public or private passwords, the transaction is placed on a waiting list waiting to be added to the ledger. elderly.
So, since numerous operations take place at the same time, they must be added sequentially, one after the other… It is a chain of transaction blocks.
History of Cryptocurrencies
Did you know that before cryptocurrencies appeared, other digital currency systems already existed? For a long time, countless people tried to create a digital cash system, however, none were successful.
The problem with these systems is that they were controlled in all aspects, they were currencies and centralised systems. From there, the cryptocurrencies that we know today were born, of a decentralised nature, such as Bitcoin.
To your surprise, these cryptocurrencies were not created with the intention of being what they are today. Bitcoin was and is the pioneer among all the thousands of cryptocurrencies that exist and was created by a man named Satoshi Nakamoto.
The latter never revealed his identity, so it is not known for sure if there is a single creator of Bitcoin or if there is a group behind him. Similarly, the main objective of the invention of Bitcoin was to create an electronic P2P (peer-to-peer) cash system.
Nakamoto, who had studied the models that had been created in the past, knew that creating a centralised cash system would bring the same flaws and therefore the same results.
This is how Bitcoin was born, the first decentralised digital cash network that is not under the orders or control of a government or administrative entity. The only owners of Bitcoin are those who decide to join the community every day, no one else.
Bitcoin was created by Satoshi Nakamoto in 2008, the year in which it managed to drastically increase its value. Initially its value was around a penny, but it was only a matter of time before the price shot up to monumental levels and has even managed to maintain it to this day (even though there have also been falls).
However, despite the resounding success of cryptocurrency, Nakamoto faced a big problem: stopping double spending. The latter refers to the time when the owner of a currency had to spend the same amount of money twice and was the main reason why other systems had failed.
The digital currencies that had been created before were always subject to centralisation, controlled by a central authority that governed the expenses and the amounts of money that were handled in order to stop double spending. To solve this, Nakamoto managed to reach a consensus that included all the parties that make it up, so that if there was a disagreement, the network could not keep running.
Everything Nakamoto had to do to create a successful system seemed impossible to achieve, but… he did it. This person or group demonstrated and continues to demonstrate that creating another type of system is possible, so other cryptocurrencies decided to join together to form the great network of digital money that surrounds us today and demonstrate that it is not vitally important to be under an authority centre that controls spending and user accounts, as long as there is a consensus between the parties involved.
As you will see, the history of the creation of cryptocurrencies is not very long, but without a doubt it brings with it numerous historical events that have marked a before and after. Today, more and more banks, organisations, investment firms, and even retailers are accepting cryptocurrencies as a form of payment.
The Most Common Cryptocurrencies
After Nakamoto created Bitcoin in 2008, dozens of decentralised cryptocurrencies have been launched. Today there are approximately 1700 and the number continues to increase.
However, among the most popular and highest value are:
Bitcoin – The world’s first cryptocurrency. It is positioned as the most popular in virtual markets, even though it is not completely legal in all countries.
Ethereum – Based on the foundations of Turing, this cryptocurrency gives developers the opportunity to create different applications or improve existing ones that are not compatible with the Bitcoin platform.
Bitcoin Cash – Its origin comes from a separation from the Bitcoin community. Its value has been increasing considerably, managing to position itself among the list of the five main cryptocurrencies, in terms of market capitalisation.
Bitcoin Gold – Based on Bitcoin, it uses another type of algorithm that allows it to be encrypted. In all other respects, you have decided to follow the guidelines of the Bitcoin project.
Litecoin – This cryptocurrency was founded with one main reason: to be the “digital silver”, comparing itself with the term used for Bitcoin: “digital gold”. It is considered a fork of the Bitcoin community, with the difference that its limit is 84 million (against 21 for Bitcoin) and it can generate blocks four times faster.
Ripple – What makes it different from other cryptocurrencies is that it does not use the block chain so that transactions reach the consensus of the entire community. This, for its part, uses an iterative consensus process that, although it is true, makes it vulnerable to hacker attacks, it allows it to operate faster than Bitcoin.
Dash – This network is divided into two levels: the first is made up of miners that guarantee the security of the network and record operations much faster than Bitcoin miners, while the second is made up of the so-called “master nodes”. The latter are responsible for transmitting the transaction again and enable other types of transactions such as: PrivateSend and InstantSend, always remaining anonymous.
BXP Chip Coin: the first cryptocurrency created in Mexico and that offers its citizens (and anyone in the world) the possibility of investing in it, betting and using it starting this year.
What Can Be Done With Cryptocurrencies?
The uses of cryptocurrencies are multiple, although they are usually used mainly for commercial activities. However, here we show you everything you can do with them.
You Can Buy Products
Cryptocurrencies are accepted in many places for online transactions, online and offline payments. Today it is possible to pay for flights, mobile applications, jewellry, hotel stays, spare parts for your computer and any good you can imagine.
You Can Invest
As we have mentioned before, digital currencies are considered to be one of the most attractive investments available. The number of people who take risks and invest, get great profits. There are even those who claim that thanks to these investments they have become “millionaires”. There are crypto copy trading platforms where your trades are automatically linked to other traders’ accounts.
Business Payments
Cryptocurrencies are accepted as payment, just like traditional cash. It is also possible to withdraw cash, using the Coin ATM Radar you will be able to verify which of the 1,800 ATMs distributed in 58 countries is near you so that you can exchange your cryptocurrencies for fiduciary money.
In the case of Latin America, the largest cryptocurrency market is in Mexico, where it is possible to pay and even buy cryptocurrencies in convenience stores such as Seven Eleven.
How To Get Cryptocurrencies?
There are four ways to obtain cryptocurrencies that are considered the most common today: buy the cryptocurrency of your choice with traditional money, receive it as a result of a good or service provided, create it through the mining process, or lend or exchange it.
Buying Them
When making a transaction with cryptocurrencies, whether buying or selling, what you really buy is the asset, after you have placed its total value to open a position in the market. In the same way as with traditional investments, you must create an account in the currency market of your choice, where your cryptocurrencies will be stored in the wallet.
The first step before creating your account will be to have direct access to the exchange platform.
You may not be familiar with it in an instant, but once you start to get involved with the technology they use and understand the data, it will be very easy to manage.
Then, you will need to create your own account from where you will trade the cryptocurrencies. It is important to take into account that, in most cases, obtaining an account takes a few days since there are many people doing the same procedure.
These in turn are restricted in use, where you may only be able to trade a few hundred dollars a week at first. Also, you will have to pay commissions (in most cases, not all) for holding your funds or making withdrawals.
Through Trade
The act of distributing, betting or exchanging CFDs (contracts for difference), refers to the speculation on whether the chosen market will increase or decrease in value. Prices are quoted in traditional currencies, and you never take ownership of the cryptocurrency itself.
Contracts for Difference (CFD) betting are leveraged products that will allow you to open a position with as little as a fraction of the total value of the trade.
That is to say, you will be able to obtain a great exposure in the financial market, while only mobilising a small amount of capital. However, always keep in mind that just as your earnings may increase, they may also decrease.
Also, because there is no need to deal with an exchange, you could be ready to trade in much less time.
In fact, with Libertex you could be trading in less than five minutes, with our simple application form and instant online verification.
With cryptocurrency trading, you will not directly access the underlying exchange: we expose ourselves to the market on your behalf. This means that you will not need to set up and manage an exchange account.
Mining Them
The process of mining cryptocurrencies is about: processing transactions within the virtual currency system. For example, on the Bitcoin platform, each transaction that occurs is known as a “block” and is added to the record of all other transactions that have been made before. That is why it is known as a “blockchain”.
How Does Blockchain Work?
When making a peer-to-peer cryptocurrency transaction, it is sent to each and every user who owns a full node wallet. The miners will then need to solve a math problem or puzzle through software that will allow them to add a block of transactions to the public ledger.
The miner who manages to solve the puzzle will receive a cryptocurrency reward. Due to the high competition of miners, many have created a new practice called “mining pool” or mining pool, which consists of gathering all their computational knowledge to solve the problem and sharing the commission among the participants.
The mining pool algorithm is based on consensus, where if the majority of miners send the same transaction data.
A cryptocurrency is defined by the digitally signed record of its transactions, beginning with the moment of its creation. Blocks are proof-of-work encrypted HASHes that prevent coin duplication attempts. If blockchains didn’t exist, it would be very easy to copy and paste them.
In its beginnings, the mining of cryptocurrencies was carried out in the CPUs of any individual computer that had the highest speed and the largest number of cores, achieving greater profitability.
Subsequently the system evolved from multiple graphics card systems, through programmable gate arrays (FPGA) to what is now known as ASICs or application specific integrated circuits. This sought to find the same results (or better) but reducing the use of electrical energy.
Bitcoin started with just a few mining individuals and organisations. By that time, the startup could be enabled by a single high-end gaming system, but now that’s all changed. Today, even the largest mining organisations need to spend large amounts of money on high-performance computers to ensure their security, even if that is not enough.
The “bots” or stealth mining continues to be a threat to these networks, where users’ cryptocurrencies are extracted without their prior authorisation.
Final Result
Below, we present all the pros and cons of the most used ways to extract cryptocurrencies. It is important that you take into account that each and every one of them represents a risk and that they must be carried out under a series of previous knowledge.
Pros Cons
Purchase Your Own Cryptocurrency
You can use cryptocurrencies to buy things.
You need to have the full value in current money.
Depositable amount limits.
You pay fees for withdrawals or transfers.
Trading
You use leverage and are not required to invest a large amount.
You do not have to pay taxes for the benefit.
You start investing immediately, without the need for third-party accounts.
No deposit or withdrawal fees.
No deposit limit.
You don’t own cryptocurrency.
Easy to lose control over how much you are investing.
Mining Your Own Cryptocurrency
The only capital required is that of the first investment in equipment huge competition
Limited amount of Bitcoins that can be mined
Most Bitcoin has already been mined
Electricity and hardware costs
It can take a long time to earn Bitcoins
Final Considerations
Cryptocurrencies are no longer a matter of science fiction, they are real and are not owned by any state. They are used for non-monetary settlements and for those investors with a vision of the future who want to get rich.
Investing in cryptocurrencies implies generating large profits through a relatively young market, where the most optimistic and visionary investors project themselves into the future to buy the cryptocurrencies with the greatest potential.
However, do not forget that before investing it is necessary to carry out your own research. That way your investments will be safe and with little chance of loss.
Frequently Asked Questions
What is a Cryptocurrency in a Nutshell?
A cryptocurrency is a digital currency that does not exist physically, but only in code form that can be distributed across many computers.
What Would be an Example of Cryptocurrency?
There are many well-known cryptocurrencies. The first cryptocurrency was Bitcoin, and then Ethereum, Litecoin, and Dash also appeared on the market.
How are Cryptocurrencies Used?
Although it is rare to buy something with cryptocurrencies in real stores, a cryptocurrency can be used as a payment method for some services. Cryptocurrencies are increasing in value, which is why many people prefer to collect them and then exchange them for fiat currencies. Also, cryptocurrencies are used for trading.
What Are Cryptocurrencies and Why Are They Important?
A cryptocurrency is a digital asset. It was created to form a decentralised and uncontrolled system by any authority. Also, cryptocurrencies are fast. Most countries still do not accept cryptocurrencies, but some have already started creating state cryptocurrencies that can help the government finance the economy in difficult times.
