The digital payment system known as cryptocurrency, or “crypto,” does away with the necessity for paper money. It exists only in digital form, and although people use it mainly for online transactions, you can make some physical purchases. Unlike traditional money printed only by the government, several companies sell cryptocurrencies.
Since cryptocurrencies can be purchased, sold, or traded, their value does not change. It is different from non-fungible tokens (NFTs) with variable values. For example, one dollar in cryptocurrency will always be one dollar, while the value of one dollar of NFT depends on the digital asset it is attached to.
How are cryptocurrencies created?
Transactions made with cryptocurrency need to be verified, and mining will perform the verification and create a new cryptocurrency. Mining is adding transactions to the blockchain using specialized hardware and software.
Cryptocurrency vs. traditional currency
The government produces traditional currency in paper notes and coins you can carry or deposit in the bank. It can be used for purchases and other cash-only transactions. The government backs traditional currency, while any government, bank or financial institution do not control cryptocurrency.
Traditional currency can be kept in a bank or other financial institution, whereas crypto is kept in a digital wallet. Banks insure money deposited in bank accounts against loss, while crypto has no recourse.
What are the benefits of cryptocurrency?
When it comes to cryptocurrency, it has certain advantages over traditional currency. The advantage of cryptocurrency is privacy. You don’t have to provide any personal information when you buy crypto. This protects you from potential identity theft and other fraudulent activities. And no matter what happens with the government, your investment is safe.
Another advantage of it is that it is global, so there is no need to calculate or pay exchange rates, although cryptocurrency is not legal in some countries. You don’t have to worry about bank account restrictions, such as ATM withdrawal limits.
Types of cryptocurrencies
It is available as coins or tokens. The difference between the two is that tokens are assets on the blockchain, while coins can be virtual, digital, or tangible. Coins are more traditional money; the digital coin has its own blockchain. Conversely, a token is created on an existing blockchain and can be used as a currency or to represent asset ownership.
The most widely traded, Bitcoin, was the first to be introduced. The second-most expensive cryptocurrency, Ethereum, is suitable for intricate transactions. Other well-known cryptocurrencies, or “altcoins,” are XRP, Dogecoin, Cardano, and Solana.
Bonus Tips:
Start with little sums that you are willing to lose.
Use only reputable cryptocurrency exchanges and wallets.
Keep your cryptocurrencies safe, ideally in a hardware wallet.
