Fewer and fewer people in the world have never heard of cryptocurrencies. No wonder, because news about them is published in various types of media: press, television, the Internet. Many people consider the emergence of cryptocurrencies as a breakthrough in the field of finance, and even an object worthy of investment. Others distance themselves from them, sincerely hating them and wishing them a quick fall. Regardless of which group you belong to, you should understand what their phenomenon is and how to invest in them.
A lot has already been written about cryptocurrencies.
There is no doubt that many rich people have appeared in the world thanks to investing in cryptocurrencies. Although there are certainly those who, carried away by the wave of assurances of gigantic profits, have suffered huge losses.
Proponents of cryptocurrencies claim that they are the money of the future, financial freedom and digital gold. For opponents, these are the toys of people who no longer have an idea of what they can invest money in. They also see them as worthless assets,and some even pyramid schemes.
The news about cryptocurrencies is too emotional and sometimes even biased. This is not surprising. The rapidly changing course of the most popular digital coins often arouses extreme feelings, from mad enthusiasm to complete abandonment. So how to get to know such a market? This is a real problem for people who have not yet formed an objective opinion about it.
Brief characteristics of cryptocurrencies.
As the name suggests, cryptocurrencies are associated not only with money, but also with cryptography. Moreover, they do not have their physical representation, existing only in digital form. For this reason, many people call it virtual money.
How can you trade cryptocurrency? It is enough for the seller of a given product or service to accept payment in cryptocurrencies to be able to pay with it. In the event that he gives you the address of the wallet, you can make him a transfer without the participation of unnecessary intermediaries.
Despite this, few people use cryptocurrencies for their payment function. For most, they are financial instruments that, despite the high investment risk, give the opportunity to achieve a high profit.
Thanks to cryptocurrency exchanges, you can buy or sell digital coins. Such exchanges resemble traditional ones, where stocks, bonds, currencies or raw materials are traded.
It is worth noting that Bitcoin itself has traveled its way, initially costing a few cents,to cost about 65,000 US dollars at its peak in April 2021. Along the way, he experienced many sudden price drops, which caused many investors to lose a large part of the value of their portfolio.
The technology behind cryptocurrencies.
Behind many cryptocurrencies is the same technology and the same way of functioning. In most cases, it's about blockchain and a decentralized system. In such technology, transactions within the cryptocurrency network are based on cryptography, i.e. complex mathematical encryption. Such calculations are carried out by many network users with cryptocurrency miners with high computing power. In return, they gain remuneration in the form of new cryptocurrency units.
In blockchain technology, cryptocurrency counterfeiting is difficult and unprofitable. Currency transfers do not require the presence of intermediaries. Only the parties involved in the transaction can learn its details, while the basic data about the operation are available to the public.
Transactions are handled and information storage are handled by cryptocurrency miners. Mining is the process of verifying and adding transactions to the public register, rewarded with new cryptocurrency units. Simultaneous work by many miners guarantees efficient operation of the network. Turning off one of the computers does not paralyze it.
The described mechanisms of action do not occur in all cryptocurrencies. Some of them cannot be subjected to the digging process, and some of them are centralized. For this reason, we can talk about similarities, but not about identity.
According to many people, cryptocurrencies are any of the virtual assets that can be traded on the exchange. Reality shows that there is a significant difference between cryptocurrency and token. The cryptocurrency works thanks to its own blockchain network, and the token on someone else's blockchain thanks to the "smart contract" mechanism. Hence, we can distinguish cryptocurrencies: Bitcoin, Litecoin and tokens: Binance Coin, Cardano. In addition to Ethereum, there are also hundreds of other tokens in the Ethereum network. Cryptocurrencies and tokens have many differences, but they are meaningless for the average investor. Both are listed on stock exchanges and both are subject to the same trading rules.
It happens that some of the tokens are called "stable coins" thanks to being secured by bullion (e.g. gold) or traditional currencies. These are m.in tether, binance USD or USD coin. With their help, other tokens and cryptocurrencies are usually bought and sold. In most countries, exchanging cryptocurrencies for "stable coins" does not result in the obligation to pay tax.