What is cryptocurrency and should you invest in it?

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Bitcoin, Blockchain, Dogecoin, Ethereum, NFTs, and virtual currency; it seems like everyone around us is talking about cryptocurrency right now. You might be wondering if you are missing a big opportunity. But what does it all mean? What is the reason behind cryptocurrency being so popular? Today, we will answer all of your questions about crypto so that you can decide if crypto is your cup of tea. 

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What is cryptocurrency?

A $10 note has value because the government says it has value. The note itself is just a piece of paper and has no value. But if you look closely, you can see that all this is, is the bank of the US promising that they will pay the bearer of this note $10. $10 is just a receipt, a kind of proof that you own a certain amount of money. But as technologies have moved even further, we found more convenient ways of storing and trading our stuff. We are in a stage where we don't see money anymore; it's just entries on a spreadsheet, which resulted in the era of blockchain technology.


The way to think about cryptocurrency is that it's 100% virtual. There is no goal, no silver, and there is no paper with crypto. It's just the transfer of digital assets, but the core concept is the same. The only difference is that instead of multiple banks keeping their separate records, with crypto, there is just one spreadsheet of every transaction made using that currency. Having all the records in one spreadsheet is called a ledger. Cryptocurrency works on blockchain technology. Lets understand what blockchain is and how it works. 



How does blockchain work?

A blockchain can be termed as a chain that carries data. Satoshi Nakamoto was the first to use this technology to create Bitcoin in 2009. A blockchain is a distributed ledger that is completely open to anyone. Once some data is recorded inside a blockchain, it becomes difficult to change it. Now, let us talk about the components of a blockchain. 


Think of a block, for example, where the block contains some data, the hatch the block, and the previous block's hash. You can compare a hatch to a fingerprint; it identifies a block and its contents. Every hatch is unique, like a fingerprint that keeps the cryptocurrency secure. The data stored inside a block depends on the type of blockchain. The bitcoin blockchain, for example, stores the details about a transaction here, such as the sender, receiver, and amount of coins. Once a block is created, its hash is being calculated. Changing something inside a block will cause the hash to change, which results in changing the block. The previous block's hash is the third element. These things effectively create a chain of blocks that make a blockchain so secure because it keeps on changing. 



How does cryptocurrency work?


What's all the fuss about? Why is everyone going crypto crazy? There are some distinct advantages to the currency system, like decentralization. Every transaction of a specific cryptocurrency is recorded on the same ledger, which is known as decentralization. There are numerous copies of that ledger, and one is found in any network section. This is why cryptography is such a safe network.


You might have heard of cryptocurrency mining. All that is is someone who set up a computer to crunch through transactions on their copy of this ledger or spreadsheet. The reason people do this is because if you dedicate your computer's power to mining, say bitcoin; then you will earn some bitcoin as compensation for mining bitcoins. This is the reason why bitcoin got more famous. 


And because you end up with so many copies of the same ledger, it becomes very easy if anyone's trying fishy. Because of the very clear organization of the system, the people see it in the future as an open transferable transaction. This is why everyone is getting crazy over this new step in the future. 



Types of cryptocurrencies


When you think crypto, bitcoin is probably the first to pop into your mind. While the coin boasts a 1 trillion market capitalization backed by 22 public companies, many other digital coins will give you good returns. We have categorized 15 altcoins into five crypto functions to make it easy to decide which one you should choose.


1.Currency

 

Currency is the most commonly known use of crypto coins. You can use digital currencies to buy products. Bitcoin for Tesla, Dogecoin for Dallas Mavericks tickets are some examples. Other currencies are litecoin and bitcoin cash.



2.Stablecoins

 

Stablecoins are asset-backed by a reserve, either a fiat currency, a cryptocurrency, or a commodity. Tether, USD coin, and Die are all assets backed by the US dollar. 


3.Proof of stake


Proof of stake is a mechanism that regulates transactions by ensuring they are verified and added to a public ledger. Cryptocurrencies that use the proof of stake are ether for decentralized applications, Cardano for research purposes, and Solana for blockchain applications.


4.DeFi(Decentralized Finance)


DeFi is an umbrella term for applications that use public blockchains and crypto assets to disrupt traditional finance sectors. The industry is also a major for ether's record-breaking success. Cryptocurrencies that use DeFi applications are Uniswap( a decentralized exchange for trading ethereum based tokens), Chain Link( a decentralized oracle's network), and Aave(a decentralized lending platform). 


5.NFTs(Non Fungible Tokens)


NFTs are digital assets with unique data that is secure and backed by blockchain technology. NFTs are verifiable and can not be duplicated and have seen significant success recently for their ability to ensure copyright is respected. Flows, Tesos, and Algorithms support it. 



This is all you need to know and understand if you are thinking of investing in cryptocurrency. Cryptocurrency has seen a huge rise in the last decade; many people have earned a lot of profit after investing. Crypto also looks like it will stay in the market for a long time. So, investing in it is not necessarily a bad idea. However, it would help if you did proper research on the crypto you choose to invest in. Remember, the future is now, so try and make the best use of these opportunities.  


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