Sunday, May 26, 2024
HomeCrypto GuideCryptocurrency – what is it and how does it work?

Cryptocurrency – what is it and how does it work?

Recently, the term “cryptocurrency” has become very popular, but quite a few people understand what it is and how it basically works. Cryptocurrency is a type of digital currency that has no control over itself. All its work is concentrated in the blockchain or a certain chain of blocks with information.

The main difference between using a blockchain is that information from a computer is stored not in one exact place, but in different parts of the world. The unit of accounting for a cryptocurrency is considered to be a coin or a token. The required name depends on the type of electronic money.

Of course, cryptocurrencies also have their downsides. For example, if there was some mistake in the bank, you could freeze your cash account, but here the process is irreversible. Nothing can be changed. The advantage is that no intermediaries are needed in this business. You can make money transactions directly with each other, without anyone’s intervention. Detailed information can be found on the official website https://defiway.com/

Why is cryptocurrency so popular today?

In fact, the cryptocurrency appeared not so recently. Rumors about this discovery began back in 2011 thanks to Forbes magazine. The official opening date is 2009. The entire popularity of cryptocurrency can be explained by the global development of Internet technologies. If you compare cryptocurrency with other different currencies, then you can see one very noticeable difference. Cryptocurrency has never been used with cash. In order to start earning cryptocurrency, you just need to register in a single mining network (mining digital currency using special equipment). Any cryptocurrency today is not yet considered official, although some countries have already begun to recognize Bitcoin, the most popular currency in this area.

A good advantage for users is that you are not tied to any country, region or city, everything happens remotely. All monetary transactions are protected by a special cryptographic method. Without confirmation of the desired code by both parties, no exchange will be obtained, that is, fraud can be excluded.

The main reasons for the popularity of cryptocurrency are:

  • Universality (you can create a wallet on absolutely any platform, at any time and from any device).
  • Access to all settlement transactions (you will be able to independently monitor the history of your cash transactions).
  • Anonymity (you can specify your data during the payment, but if you wish).

Drawing a conclusion on this point, we can confidently say that due to its convenience, simplicity and high reliability, the site is very popular.

How to buy cryptocurrency

Before buying cryptocurrency, you need to decide how you want to grow your portfolio. That is, to make a profit. There are several ways:

  • invest in order to trade (sell/buy and earn on exchange rate differences)
  • invest in top coins and hold until the profit from selling them is satisfactory
  • invest in coins to earn interest: staking or cryptolending.

It is important to decide on a strategy before the first cryptocurrency purchase because it will depend on how much time per week you will devote to tracking the rate.

First, you need to choose an exchange and register on it. And then you can make your first purchase.

Where is the best place to store cryptocurrency?

To store cryptocurrencies, so-called crypto wallets are usually used. They are considered the safest option for cryptocurrency holders.

Crypto wallets help to store assets both in a digital (software wallet. – Ed.) and in a physical (hardware wallet. – Ed.) storage location. With the help of such crypto wallets, people can easily manage their blockchain assets and cryptocurrency reserves.

While some wallets only support one cryptocurrency, most offer multi-asset solutions. With their help, users have the ability to simultaneously store multiple cryptocurrencies such as Bitcoin, Ethereum, Cardano and many others.

Electronic crypto wallets

They are created online on various financial sites: cryptocurrency exchangers, cryptocurrency exchanges, etc. The very process of creating such a wallet is similar to registering on a particular resource and does not involve installing special software on a personal computer or smartphone.

Pluses: ease of installation, no need for additional software or hardware, the ability to access the wallet from various computers or smartphones.

Minuses: weak security due to the fact that such crypto wallets are registered remotely, the data is stored on external servers, which means that they can be subject to hacker attacks.

In history, there are cases of hacking cryptocurrency exchanges and gaining access to the data of hundreds and thousands of users, which led to the loss of funds. This requires developers to take additional security measures, such as two-factor authentication (2FA).

Software crypto wallets that are installed on a computer

These are special applications that are downloaded from a public site and installed on a personal computer. They are also called “desktop” wallets.

Desktop wallets are divided into “thick” and “thin”.

“Thick” wallets are a full-fledged version of the program, which even includes the ability to mine cryptocurrency.

However, the inconvenience of such a wallet lies in the huge volume that it occupies on the computer’s hard drive. Also in a longer time of operations.

“Thin” wallets spend more time on transactions but have limited capabilities.

Pros: More reliable than online versions.

Cons: take up a lot of space on the computer, or have limited functionality.

Smartphone applications

Special cases of software crypto wallets designed specifically for installation on smartphones. They can be downloaded from AppStore and Google Play.

Almost all popular software crypto wallets have versions for smartphones.

The advantages and disadvantages are the same as for software wallets for computers.

Electronic wallets on paper

They are a piece of paper the size of a banknote, on which the public and private keys are printed.

Advantages: much lower cost compared to, for example, a hardware wallet.

<

Cons: Easy to lose. Plus, it’s easy to steal.

Hardware (physical) wallets

They look like regular flash drives. They are considered the most reliable of all crypto wallets. This is because the access key to them is generated locally and is not transmitted over the Internet. It is stored on the token itself (flash drive).

To protect against hacker hacking and computer viruses, secure chips are used, PIN codes are used to confirm transactions, and a special “mnemonic phrase” is used to restore access to the wallet (it is also called a seed phrase. – Ed.).

The cost of hardware crypto wallets starts from $50-100 and can go up to $500 or more.

Advantages: high reliability. Hacking a hardware wallet is almost impossible.

Disadvantages: higher cost compared to other crypto wallets. The inconvenience is associated with the fact that in order to conduct transactions, you will first have to transfer the cryptocurrency from a hardware crypto wallet to some software one, and after the end, make a reverse transfer. Those. for daily and repeated use, a hardware wallet will be inconvenient.

In addition, it is necessary to carefully store the seed phrase (a combination of characters to restore the wallet) separately from the device itself in a safe place. If you lose both the code and the key itself, the accumulated cryptocurrency will be lost forever!

Tobi Loba
Tobi Loba
Tobi Loba is a passionate writer with a vast interest in the stock market. She joined the crypto ecosystem about three years ago and has written lots of ebooks and articles in relation to cryptocurrency and blockchain projects. Tobi Loba earned her degree at the University of Ibadan.
RELATED ARTICLES

Latest News & Articles