Cryptocurrencies are digital currencies that have no physical expression, unlike fiat money. Such currencies are protected from counterfeiting and duplication by cryptography. The number and issue of cryptocurrencies are limited. For example, the maximum amount of the most popular cryptocurrency bitcoin is 21 million coins. It’s impossible to produce more than 21 million BTC under any circumstances.
A key feature of cryptocurrencies is decentralization – there is no external or internal mediator. This is the reason why cryptocurrency transactions cannot be controlled by banks, tax, judicial and government authorities.
Key characteristics of cryptocurrencies
- Lack of trust. Third parties (like states and banks) don’t manage cryptocurrencies. The trust in the governing body is replaced by verification and control by each blockchain participant.
- Immutability. Blockchain technology makes cryptocurrency transactions immutable: they cannot be reversed, duplicated, hidden or deferred. This protects cryptocurrencies from classic fraud schemes and makes interaction with them more transparent than with fiat currencies.
- Decentralization. Cryptocurrency data is scattered around the world and duplicated many times, which prevents their loss. At the same time, each user has access to data, which makes the entire system transparent and open.
Why are cryptocurrencies better than fiat money?
- Lack of mediators like banks and government.
- The ability to make anonymous payments.
- High level of security.
- Low commission rate compared to traditional banks.
- Decentralization provides transparency for all participants.
- Transactions are not tied to state borders.
Pros of crypticurrency
- Open source code. This allows anyone to mine cryptocurrency.
- Anonymity. Regular money transactions are easy to trace, while cryptocurrency transactions are anonymous.
- Decentralization. Cryptocurrency data is available to all users of the blockchain network, which makes transactions transparent, and data loss is almost impossible.
- Limited emission. The emission of cryptocurrencies is limited, which avoids inflation.
Security. Cryptocurrencies are reliably protected, so attackers won’t be able to hack your wallet and steal money.
Cons of cryptocurrency
- No guarantees. Each user is independently responsible for own assets because there are no mediators that can protect against fraud or theft.
- Volatility. Cryptocurrencies have high fluctuations rate. Usually, volatility depends on the demand for cryptocurrency, changes in legislation and other factors.
- The danger of loss. In case you lose access to your cryptocurrency wallet, you risk losing all your coins.
- Risk of prohibition or restrictions. Some countries have already introduced, while others are only considering the possibility of introducing a ban on the use of cryptocurrencies.
Types of cryptocurrencies
All cryptocurrencies can be divided into the following types:
- Currencies coins. Such coins are intended to pay for goods and services and can be an investment object. They are distinguished by anonymity, decentralization and ease of use. Thw most well-known example of this type of coins is Bitcoin (BTC). Nowadays Bitcoin is the only fully decentralized cryptocurrency.
- Platform coins. These are financial instruments for the development and execution of smart contracts. The most popular Platform Coin is Ethereum. Also, Ethereum is used as ordinary digital money.
- Cryptocurrency exchanges. Many large crypto exchanges issue their own tokens. Users can change any currency for an exchange token at any time with a minimum commission, which simplifies many transactions. The most popular exchange tokens are EXMO Coin (EXM) and Binance Coin (BNB).
- Stablecoins. These coins are anchred to other cryptocurrencies or fiat money, which significantly reduces their volatility. The most well-known stablecoin is Tether (USDT), it is backed by US dollars.
- Utility tokens (App coins). Such coins are issued in a limited volume to conduct an ICO.
- Security tokens. Such currencies are analogs of securities that depositors receive.
How do I get cryptocurrency?
You can get cryptocurrency by mining or buying.
Classic mining. To earn cryptocurrency through mining, you need to provide the computing power to computing transaction hashes. When a miner picks up a hash, he/she creates a block on the blockchain and receives an award.
Cloud mining. In this case, you rent computing power for mining and receive profit from its work. Unlike classic mining, you don’t need to ensure and maintain the performance of technical equipment.
Buying cryptocurrency. This is the easiest way to get cryptocurrency. You can buy any coins on an exchange or P2P platform.