What is a Cryptocurrency

What is cryptocurrency?

Cryptocurrency (or “crypto”) is a class of digital assets created using cryptographic techniques that enable people to buy, sell or trade them securely.

Unlike traditional fiat currencies controlled by national governments, cryptocurrencies can circulate without a monetary authority such as a central bank.

How does cryptocurrency work?

Bitcoin and most other cryptocurrencies are supported by a technology known as the Blockchain, which maintains a tamper-resistant record of transactions and keeps track of who owns what. The use of blockchains addressed a problem faced by previous efforts to create purely digital currencies: preventing people from making copies of their holdings and attempting to spend it twice.

Individual units of cryptocurrencies can be referred to as coins or tokens, depending on how they are used. Some are intended to be units of exchange for goods and services, others are stores of value, and some can be used to participate in specific software programs such as games and financial products.

How are cryptocurrencies created?

One common way cryptocurrencies are created is through a process known as mining, which is used by Bitcoin. Bitcoin mining can be an energy-intensive process in which computers solve complex puzzles in order to verify the authenticity of transactions on the network. As a reward, the owners of those computers can receive newly created cryptocurrency. Other cryptocurrencies use different methods to create and distribute tokens, and many have a significantly lighter environmental impact.

Pros and cons of cryptocurrency

Cryptocurrency inspires passionate opinions across the spectrum of investors. Here are a few reasons that some people believe it is a transformational technology, while others worry it's a fad.

Cryptocurrency pros

• Supporters see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, presumably before they become more valuable.

• Some supporters like the fact that cryptocurrency removes central banks from managing the money supply since over time these banks tend to reduce the value of money via inflation.

• In communities that have been underserved by the traditional financial system, some people see cryptocurrencies as a promising foothold.

• Other advocates like the blockchain technology behind cryptocurrencies, because it’s a decentralised processing and recording system and can be more secure than traditional payment systems.

• Some speculators like cryptocurrencies because they’re going up in value and have no interest in the currencies’ long-term acceptance as a way to move money.

• Some cryptocurrencies offer their owners the opportunity to earn passive income through a process called Staking. Crypto staking involves using your cryptocurrencies' to help verify transactions on a blockchain protocol.

Cryptocurrency cons

• Many cryptocurrency projects are untested, and blockchain technology in general has yet to gain wide adoption.

• The environmental impact of Bitcoin and other projects that use similar mining protocols is significant. A comparison by the University of Cambridge, for instance, said worldwide Bitcoin mining consumes more than twice as much power as all U.S. residential lighting. Some cryptocurrencies use a different technology that demands less energy.

• Governments around the world have not yet fully reckoned with how to handle cryptocurrency, so regulatory changes and crackdowns have the potential to affect the market in unpredictable ways.