Research shows that most people have heard of cryptocurrency, but don’t fully understand what it is. Think of this article as cryptocurrency investing 101.
Cryptocurrency is a type of digital currency. It has become popular over the last decade, especially as Bitcoin has become the most widely followed alternative currency. Typically, cryptocurrency is purely electronic and has no physical form.
Cryptocurrency appeals to many people because of its ability to be managed without a central bank. It is also tough to counterfeit because of the blockchain ledger system that manages the currency. Blockchain is a decentralized technology that manages and records transactions across many computers. Part of the appeal of this technology is its security. To this end, in some cryptocurrencies, the number of currencies is limited. In the case of Bitcoin, the system is set up so that no more than 21 million bitcoins can be issued.
Powerful computers, commonly known as miners, do the calculations and process the transactions in the ledger. By doing so, they earn a unit of the currency or at least part of a unit. It takes a lot of expensive processing power and often a lot of electricity to do these calculations.
Holders of the currency can store it in a computer wallet that allows them to spend or receive the currency. To make a transaction, users need a key that allows them to write in a public ledger, taking care of the money transfer.
There is literally no limit to the number of cryptocurrencies that can be created. The range is staggering and literally thousands of currencies have emerged in the last few years, especially as Bitcoin rose to mainstream popularity in 2017. Some of the most popular cryptos include Bitcoin, Litecoin, Ethereum, Ripple, and Tether.