Definition Of Cryptocurrency And How It Works

The aim of this article is to let you know the DEFINITION OF CRYPTOCURRENCY AND HOW IT WORKS, WORKING MODULE OF CRYPTOCURRENCY, TYPES OF CRYPTOCURRENCY. PURCHASING OF CRYPTOCURRENCY, STORING OF CRYPTOCURRENCY, PURCHASABLE ITEMS WITH CRYPTOCURRENCY. IF CRYPTOCURRENCY IS SAFE, CRYPTO FRAUD AND SCAMS, TIPS ON CRYPTO INVESTMENT ETC. Now let me introduce the topic to you.

Cryptocurrency is combination of two words, “Crypto” and “Currency”. “Crypto” is coined from a Greet word “Kryptós” meaning “hidden”. Therefore, Cryptocurrency can be said to be a digital or virtual currency, that is decentralized and run on blockchain technology. Now let’s look at definition of Cryptocurrency and how it works.

Definition Of Cryptocurrency

When discussing definition of Cryptocurrency and how it works, note some important point. Cryptocurrency can also be said to be a digital payment system. It is where transactions can happen between one person and another anywhere in the world.  Transactions exist purely as digital entries. Just like the bank where money is stored, cryptocurrency are stored in digital wallets.

There is a special feature possessed  by cryptocurrency. It secures the transmission and transaction of cryptocurrencies, by avoiding hacking and theft of the currency.  

The sole purpose of crypto traders and crypto analyst is to make profit out of their trades. While the analyst, study the crypto market for a favorable trade. The definition of Cryptocurrency and how it works is elaborate.

Working Module of Cryptocurrency

The working module of cryptocurrency is simply how cryptocurrency works. For a cryptocurrency to function appropriately, it requires a system or a platform to serve it. This platform is what is known as a Blockchain.

A Blockchain can be said to be a public ledger it keeps record of all cryptocurrency transactions and enable cryptocurrencies run smoothly. Cryptocurrency is decentralized. That means, no one controls it, no one can tamper with it. This working module of cryptocurrency is vast.

This cryptocurrencies don’t manufacture themselves. Crypto traders and miners perform certain operations with the computer to solve some mathematical problems. When the slove this problems, the generate units of cryptocurrencies called coins. Mining is the act.

Now, there are certain ways to get this coins. It’s either you mine or you purchase them from cryptocurrency brokers. The mine as much as possible and store it to resale later. That is the working module of cryptocurrency.

The pioneer of cryptocurrency, Bitcoin emerged since 2009. However, other cryptocurrencies are being built on blockchain technology. Nevertheless, Bitcoin has maintained the number 1 spot in terms of popularity.

Types Of Cryptocurrency

In recent times, many other cryptocurrencies have emerged. What are the types of cryptocurrency :

Bitcoin:

Like earlier said, it is the pioneer of cryptocurrencies. It was developed in 2009 by a name called Satoshi Nakamoto. Bitcoin is one of the most widely traded crypto.  Non-Bitcoin cryptocurrencies are collectively known as “altcoins” to distinguish them from the original. One of the best types of cryptocurrency.

Ethereum:

This is one of the types of Cryptocurrency that is very popular. Perhaps the second most popular cryptocurrency. It was formed in 2015 and has its own cryptocurrency called Ether or Eth. Eth is performing well amongst other types of cryptocurrency.

Litecoin:

Amongst other cryptocurrencies, Litcoin share a certain level of similarity with Bitcoin. However, its new developed innovations; fast transaction and payments, makes it to stand out.  

Ripple:

The last but definitely not the least is Ripple, founded in the year 2012. It Is company that have work with different financial institutions. It possess a distinguishing feature of being able to trace different transactions. The transactions must not be cryptocurrency transactions.  

Purchasing of Cryptocurrency

Purchasing of Cryptocurrency might sound difficult to the ear, but it is actually not difficult. Below are various steps to buy cryptocurrency safely. . These are:

Step 1: Choosing a platform

To choose a platform, you must be very careful to avoid being scammed. It is either you choose between a traditional broker or trusted cryptocurrency exchange:

  • Traditional brokers. These are people who offer cheaper ways to buy and sell cryptocurrency online. They, also deal on other financial assets like stocks, bonds, and ETFs.
  • Cryptocurrency exchanges. These are exchange platforms that offer different cryptocurrencies in return for money. They also offer other exchange options like wallet storage etc. Many exchanges charge asset-based fees.

The most important thing to consider when choosing a platform is the security protocols. This is because most people are in scam.

Step 2: Funding your account

Funding of account is the second important step to take. Without funding your account, you cant trade. One  can use fiat currencies such as the US Dollar, the British Pound, or the Euro using their debit or credit cards.

Due to some bank regulations, some exchange platforms do not accept the use of credit cards. Other payment methods that ome platforms will  accept are ACH transfers and wire transfers.

Most times, fees is problem when transacting cryptocurrency. It varies depending on the platform used and payment method.

Step 3: Placing an order

This is the last step to take when purchasing a cryptocurrency. Placing an order via your broker’s or exchange’s web or mobile platform are various means to buy crypto. You can either place a buy order or a sell order.  

Other ways to invest in crypto  includes buying and selling with payment services like PayPal, Cash App, and Venmo etc.  There are also crypto investment vehicles. They are:

  • Bitcoin trusts: You can buy shares of Bitcoin trusts with a regular brokerage account. These vehicles give retail investors exposure to crypto through the stock market. 
  • Bitcoin mutual funds: There are Bitcoin ETFs and Bitcoin mutual funds to choose from. 
  • Blockchain stocks or ETFs: You can also indirectly invest in crypto through blockchain companies that specialize in the technology behind crypto and crypto transactions. Alternatively, you can buy stocks or ETFs of companies that use blockchain technology.

The best option for you will depend on your investment goals and risk appetite

Storing Of Cryptocurrency

As you purchase a cryptocurrency, you need to store it in a place. This place is caller a Crypto wallet. It is a digital applications that allow the storing of cryptocurrencies to prevent theft. Most times, this wallets have recovery phrases. This is to enable easy recovery of wallets incase of missing devices.

There are different wallet providers to choose from. “hot wallet” and “cold wallet” term re used:

  • Hot wallet storage: “hot wallets” refer to crypto storage that uses online software to protect the private keys to your assets.
  • Cold wallet storage: Unlike hot wallets, cold wallets (also known as hardware wallets) rely on offline electronic devices to securely store your private keys.

Typically, cold wallets tend to charge fees, while hot wallets don’t.

Items Purchasable With Cryptocurrency?

Initially, the intention was just to buy and cryptos. Although its not yet practiced, but a couple of firms accept cryptos for purchasing items. Here are some examples:

Technology and e-commerce sites:

 Newegg.com, AT&T, and Microsoft are all technology companies that transact with crypto. Some platforms like verstock, an e-commerce platform, was among the first sites to accept Bitcoin.

Luxury goods:

Prominent luxury firms like Rolex, Patek Philippe and so on, accept crypto form of payment. Chanel, Louis Vuitton also accept crytocurrency as payment.

Cars:

Some car dealers – from mass-market brands to high-end luxury dealers – already accept cryptocurrency as payment.

Insurance:

It is no news  that Insurance companies are now accepting cryptocurrency as payment form. In recent times, April 2021,AXA announced that it had begun accepting Bitcoin as a mode of payment for all its lines of insurance except life insurance (due to regulatory issues). This and a couple of more insurance firms accept Bitcoin as payment.

In cases where the firm does accept crypto, you can use a crypto debit card like Bitpay and pay. This is common in the US.

Cryptocurrency fraud and cryptocurrency scams

The number of Crypto fraud and scams are numerous and are still increasing.  Cryptocurrency scams include:

Fake websites: People create fake websites which contains fake informations like authenticity and promising packages. All this are to lure people to invest in their site.

Virtual Ponzi schemes: Their work is to create false opportunities and packages, promising instant and huge payment on investment. The do this by paying off old investors with new investors’ money.

“Celebrity” endorsements: This happens in two ways. Either claim to be a celebrity with fake profile or the paint a false narrative that a famous business person or celebrity is backing a specific cryptocurrency. Once they have encouraged investors to buy and driven up the price, the scammers sell their stake, and the currency reduces in value.

Is cryptocurrency safe?

The ability of cryptocurrencies is built using blockchain technology gives it a level of security. Building cryptocurrencies on blockchain protects transactions making it difficult for hackers to tamper with it. So, yes it is safe.

In addition, transactions require a two-factor authentication process, you might be asked to enter a username and password to start a transaction. Then, you might have to enter an authentication code sent via text to your personal cell phone.

Four tips to invest in cryptocurrency safely

Crypto experts will always tell people that investing in cryptocurrency is a risk. This is so because there is no definite way it follows. It might rise today and fall tomorrow. Below are some helpful cryptocurrency investment tips:

Research exchanges:

First important thing to do is to learn cryptocurrency well. Then learn about research exchanges before you invest. If it entails asking questions to experienced crypto trader, go ahead. All these will enable you make the right choices.

Know how to store your digital currency:

It is advisable you keep your cryptocurrencies in a digital wallet with recovery phrases. Also, while storing ensure which wallet has high security and proper technical requirements.

Diversify your investments:

For anyone to do well in cryptocurrency investment, one must learn to diversify. This means that you should not pull all your risks together. It is better to spread your investment across several currencies than pile it up in one.

Prepare for volatility:

As said earlier, cryptocurrency market is highly volatile. No one can really predict what next will happen in the crypto market. It is always advisable for those with low psychological control not to invest in cryptocurrency

Definition of Cryptocurrency and how it works is an interesting topic. Cryptocurrency is a very nice investment and is lucrative. But that doesn’t mean it doesn’t come with its own challenges. The most important thing is to carry out research and plan adequately before investing in cryptocurrency.

I hope this post has guided you in knowing more about the Definition of Cryptocurrency and how it works. working module of cryptocurrency. Types of cryptocurrency , Purchasing of cryptocurrency.

See the List of things to learn.

  1. Blockchain Technology
  2. Defi
  3. NFTs
  4. DAOs
  5. Crypto
  6. Web 3.0
  7. Altcoin Tokenomics
  8. Metaverse
  9. Smart Contracts

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