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What Is Cryptocurrency? A Beginner’s Guide to Cryptocurrencies

Cryptocurrencies explained

Cryptocurrencies are virtual, digital currencies that work on blockchain technology. Same as fiat currencies, cryptocurrencies can be used to complete transactions. However, cryptocurrency transactions are done in a decentralized system, which means that no central authority controls the transactions.

The most popular cryptocurrencies are Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), Litecoin (LTC).

Logos of the most famous cryptocurrencies. Source:

Bitcoin (BTC) is considered the first cryptocurrency to successfully be implemented in the crypto market. 

It was published by a person(s) with the pseudonym Satoshi Nakamoto, who still remains unknown.

How Do Cryptocurrencies Work?

Cryptocurrencies work in a peer-to-peer system, eliminating the need for third parties. However, transactions still need to be verified even if there is no central authority. 

Transactions in decentralized systems are done voluntarily by people through computer nodes (miners) by solving advanced mathematical problems and signing transactions with a public key. When these transactions are verified, a block of information is added to a chain of other blocks of information, forming a blockchain. Blockchains are also referred to as virtual ledgers that keep track of cryptocurrency transactions. After each transaction is verified, miners are compensated for the time and cost spent to verify.

Since cryptocurrencies are decentralized, additional transaction fees are not required, which gives cryptocurrencies an advantage when compared to transactions with fiat currencies, such as USD, Euro, etc.

You can invest in cryptocurrencies through secure exchanges and store them in crypto wallets.

Cryptocurrency Usage

Cryptocurrencies can be used to complete online transactions for various services. However, cryptocurrencies are not accepted everywhere yet. 

Some altcoins (cryptocurrencies other than Bitcoin) offer much more services in their blockchains rather than just transactions. For instance, the Ethereum network allows you to launch and run decentralized applications (dApps) in its network and run decentralized financial services (DeFi).

Pros and Cons of Cryptocurrencies

Cryptocurrencies have various advantages as well as few disadvantages. Let’s take a look at them below.





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