Understanding These Things About Cryptocurrencies before You Invest
If you are a potential investor of cryptocurrencies, you must have heard both good and bad things about this market.
The major reason why cryptos attracted the interest of investors in the first place is because of their ability to give good returns in the short term.
However, those who wish to reap the actual, long-term benefits of the crypto market must know various things about cryptocurrencies. It’s good that you’re in the right place.
Let’s start with the basics.
What are cryptocurrencies?
Cryptocurrencies are digital currencies, which were made with the primary purpose of enabling users to conveniently trade data and money digitally.
In that way, cryptocurrencies act both as a medium of exchange and as a unit of currency that can store a value.
In theory, virtual currencies do not have any real value since they are not regulated or managed by any centralized authority such as the government, however, they can be designed to hold the value of any real entity, making it easier to trade and use that entity in the digital space.
Cryptocurrencies are decentralized
Cryptocurrencies are decentralized in nature and operate on a distributed ledger technology (DLT) like blockchain. Wondering what does it mean?
Decentralization is a feature that operates an entity free of centralized authorities and operates in a completely self-governed manner.
Cryptocurrencies are decentralized, which means they are not controlled or governed by any centralized entity such as a bank or the government.
The holders of cryptos are the true owners. They can directly trade their currencies with other users without requiring a third-party.
Also, cryptocurrencies are based on blockchain technology, which maintains the transactions in a distributed public ledger. Wondering why? It’s so that the transactions are completely public and secure and cannot be modified or deleted by any user without disturbing the entire chain.
Cryptocurrency transactions are secured through cryptography and stored in the blockchain in block formats with each transaction record connected with its predecessor and successor.
There are major cryptocurrencies like Bitcoin, and then there are Altcoins.
Bitcoin was the first cryptocurrency to become immensely popular among investors. It was created in 2009 and is presently the biggest digital currency in terms of market cap.
Inspired by the trend of bitcoin, many new cryptocurrencies were found which were either used as payment currencies (coins) or represented a new project or entity (token). Altcoins emerged as the alternative of bitcoin which were different from bitcoin in one manner or another.
Dash, Ripple, Titan coin, NEO are some of the popular altcoins. They can be used for digitally sending/receiving virtual data or value.
Altcoins usually present a better investment opportunity, for they represent actual projects/products with real value. Bitcoin is not backed by any real project, it is only a virtual currency which you can send/receive globally. But altcoins are usually supported by projects which give the higher potential to become a success.
Most of the cryptocurrencies, including Bitcoin, are not legal in many countries, which means you cannot use them in day-to-day life, such as for payments at a physical store. But the trend is changing very rapidly, as more governments are recognizing crypto-coins as a reliable method for payments.