Cryptocurrencies are mysterious bits of computer code that many believe could someday replace money as we know it. They have generated huge interest and even more controversy. This article takes a look at what they are, how they work, and their potential impact on the world.
A cryptocurrency is a medium of exchange that uses encryption to secure transactions. It is not backed by any central bank or government, and instead is typically decentralized. This makes it difficult to manipulate.
The best-known cryptocurrency is Bitcoin, which was created in 2009. Its creator, Satoshi Nakamoto, remains anonymous. He or she published a Bitcoin white paper that outlined the protocol for how the cryptocurrency would work. This became the model for how other cryptocurrencies were designed.
Cryptocurrencies can be used to buy products and services online. They can also be stored as an asset, much like a stock or mutual fund. The most common way to acquire a cryptocurrency is to purchase it through a marketplace or exchange. Purchasing usually requires verifying your identity and funding your account. Once your investment has been made, you will want to store it in a digital wallet. Most platforms provide this, but you can also purchase a third-party wallet to store your coins.
Most cryptocurrencies are built using blockchain technology. A blockchain is a database that is secured by thousands of computers around the world. Only when more than half of these computers agree is a new block of information added to the blockchain. This process is called consensus.
Blockchain technology has many other applications beyond cryptocurrency. For example, a blockchain could be used to verify votes in local, county, state, and federal elections. Token holders would be issued voting tokens that they could use to cast their votes. These tokens would then be recorded on the blockchain. There would be no way to dispute the results of an election that was tallied by an autonomous, immutable blockchain.
Another possible use of a blockchain is to manage the supply of a product or service. Ethereum is one such blockchain that has a cryptocurrency that can be earned by doing validation work on the platform. Essentially, you “mine” ether by running software that verifies other people’s transactions on the network. Once you earn enough ether, you can redeem it for more Ethereum or sell it on the market.
Some cryptocurrencies are more stable than others. Stablecoins, for example, are designed to track the value of existing currencies, such as the US dollar. They often keep a portion of their total value in reserve and are audited by third parties.
It is important to research any cryptocurrency before investing. Most reputable projects make their metrics publicly available. It’s also a good idea to read a project’s white paper. A well-researched and transparent white paper can be a sign of a trustworthy cryptocurrency. It’s also a good idea for investors to understand how they can convert their holdings into cash.