Cryptocurrency brings users the ability to process transactions quickly, high security, and low costs compared to traditional payment methods.
Investing in cryptocurrency has become one of the prominent new investment trends attracting the attention of investors worldwide.
With the development of blockchain technology and the emergence of hundreds of different cryptocurrencies, investing in digital assets not only provides opportunities for profit growth but also opens up a new world of finance full of potential and innovation. Let’s explore the fascinating world of cryptocurrency with Toraffles.
Table of Contents
What is cryptocurrency
Cryptocurrency is understood as currency that has been encrypted, formed from bits, used in electronic environments for transactions, with an information system including internal network, the internet, and electronic media for storage by issuers. Cryptocurrency is created by mining and using cryptography to store transactions, utilizing decentralized blockchain technology.
Currently, some countries like Germany, the United States, Japan, etc., highly favor cryptocurrencies due to their high liquidity and convenience.
What are the characteristics of cryptocurrency ?
Based on the definition of cryptocurrency, we can understand some of its characteristics. Some characteristics already mentioned in the concept can be further analyzed:
Decentralization: This is the most prominent feature of cryptocurrency. The use of blockchain technology allows cryptocurrency to be unaffected by any individual or organization. At the same time, cryptocurrency can be used in global transactions through its own distributed network, without the need for third parties.
Rule-based: Mining and using cryptocurrency must adhere to the rules of blockchain technology. This allows for a limited amount of mining, avoiding inflation.
Non-physical nature: Cryptocurrency exists only on the network and users cannot hold, touch, or see it physically. As long as there is a network, users can use it anywhere, which enhances the liquidity and convenience of cryptocurrency compared to other types of physical currency.
Comparing Cryptocurrency and Cash
Understanding the nature, form, and purpose of cash and cryptocurrency will help investors have a clearer view to invest most effectively. Cash and cryptocurrency have similarities and differences as follows:
Similarities:
Medium of exchange: Both cash and cryptocurrency are used as means of payment, exchange for goods and services, and only have value in circulation.
Divisibility: Money can be divided into smaller units. For example, the dollar is divided into cents, and Bitcoin is divided into satoshis.
Differences:
How to mine cryptocurrency
Cryptocurrency mining is a core activity that reinforces the integrity and security of the blockchain network. Miners play a crucial role in verifying transactions, ensuring they are legitimate, and adding them to a block, which is then appended to the existing blockchain.
This process is often referred to as “proof of work” and requires miners to solve complex mathematical puzzles, involving algorithms for computation. In return for their work, they receive cryptocurrency, thus incentivizing the network to continue functioning.
However, it’s worth noting that mining has evolved significantly since the early days of Bitcoin. Cryptocurrency mining has become a highly competitive industry. Miners use high-performance hardware, known as ASICs (Application-Specific Integrated Circuits), to increase their chances of earning rewards.
The specialized nature and high energy consumption associated with mining have led to debates about sustainability and centralization, as this activity is dominated by large operations in certain geographical areas.
Storing cryptocurrency
Cryptocurrency wallets are programs or devices that store your private keys, allowing you to send, receive, and manage your cryptocurrency. Wallets can be online (hot wallets) or offline (cold wallets) and are essential for securing your digital assets.
Using two-factor authentication (2FA), keeping your private keys in secure locations, avoiding sharing personal information online, and being cautious of scams are all important practices. You should also consider using hardware wallets for long-term storage.
Cryptocurrency price fluctuations
Cryptocurrency price fluctuations are the result of numerous continuously changing factors. Supply and demand play a crucial role, as the limited supply of certain cryptocurrencies, such as Bitcoin, can lead to significant price increases when demand rises.
Additionally, market events such as listings on major exchanges, protocol updates, regulations, and impactful news can cause price fluctuations.
The high sensitivity to external events and speculation causes cryptocurrencies to tend to experience significant price volatility in a short period, providing trading opportunities but also posing significant risks for investors.
For investors, it’s important to understand the nature of cryptocurrency volatility and apply risk management strategies such as portfolio diversification and setting loss limits.
Moreover, it’s crucial to stay updated on relevant news and events, as they can significantly impact cryptocurrency prices, to make informed decisions and minimize risks associated with their high volatility.
The most popular types of cryptocurrency
Bitcoin (BTC)
Bitcoin was created in 2008 by an individual or group under the pseudonym Satoshi Nakamoto. Bitcoin is the original and most widely recognized cryptocurrency. Its mission is to create a decentralized global payment system, eliminating the need for financial intermediaries. With a maximum limited supply of 21 million coins, Bitcoin is valued as a store of value, similar to gold.
Ethereum (ETH)
Ethereum is a smart contract platform that operates with a cryptocurrency called Ether (ETH). Developed after the 2016 hacking incident on the original Ethereum network, Ether began circulating on the new network, while the previous version was called Ethereum Classic (ETC). Ethereum is known for its ability to run smart contracts, which are self-executing programs that perform actions when certain conditions are met. This makes it a popular choice for blockchain-based projects.
Bitcoin Cash (BCH)
Bitcoin Cash is a fork of the original Bitcoin that emerged in August 2017. It was created with the aim of improving Bitcoin’s scalability and efficiency by increasing the block size from 1 MB to 8 MB. This leads to faster transactions and lower fees. The coins were distributed to holders of Bitcoin, and Bitcoin Cash sought to maintain the principles of peer-to-peer digital currency.
Tether (USDT)
Tether is a stablecoin created to maintain a 1:1 peg to the US dollar. Each unit of Tether (USDT) is reported to be backed by a reserve of an equivalent amount in dollars. However, there have been controversies regarding the transparency of the reserve, leading to doubts about the stability of Tether. Nevertheless, USDT is still widely used for trading and transferring between cryptocurrencies due to its relatively stable nature.
Ripple (XRP)
Ripple is a distributed payment protocol aimed at facilitating safe and instant payments. Unlike many cryptocurrencies, Ripple does not focus on eliminating financial intermediaries but rather on integrating various currencies and assets into its network. This makes it a popular choice for financial institutions seeking efficiency in international money transfers.
Litecoin (LTC)
Litecoin was created by Charlie Lee in 2011. If Bitcoin is considered “digital gold,” then Litecoin is considered “digital silver.” One of its main differences from Bitcoin is faster transaction confirmation times, making it more suitable for everyday use. Litecoin has a limit of 84 million coins, four times the limit of Bitcoin. This makes it a popular alternative for quick and efficient transactions.
