What is a Cryptocurrency?

You’ve probably heard talk or news reports in recent years about cryptocurrency. It’s received a fair amount of media coverage. But what exactly is it? Do you understand it, and do you know what it could mean for our current financial system?

The Cryptocurrency Evolution

Perhaps the most widely known cryptocurrency on the market today is Bitcoin. There are currently a little more than 14 million bitcoins in circulation around the world. It’s digital money that cannot be inflated or manipulated by any individual, company, government, or central bank. In fact, the intention of the Bitcoin founder or founders was not to create a new currency, but to create a decentralized digital cash system. Satoshi Nakamoto is the name given to the founder, and it’s also the name of the author on a white paper about Bitcoin, but there is speculation Satoshi Nakamoto is not a real person and may be a group of people.

What Exactly Is it?

It’s based on encryption, making it extremely secure and universally accessible. The transactions are recorded both publicly and chronologically on breakthrough software known as blockchain, which performs like a ledger. It logs every transaction ever made involving Bitcoin. The blockchain is then distributed and verified across a network of computers.

Other Cryptocurrencies

Bitcoin is the most publicized cryptocurrency, but there are others that have evolved in recent years. Here is a list of some of the more well-known cryptocurrencies other than Bitcoin.

Bitcoin Cash (BCH)
Ethereum (ETH)
Litecoin (LTC)
Binance Coin (BNB)
Ripple (XRP)
Tron (TRX)
Chainlink (LINK)

Where Can I Buy and Sell Cryptocurrency?

There are a few exchange applications that can be used to buy and sell cryptocurrency:

Coinbase and Coinbase Pro
Cash App
Binance
Bisq

Exchange applications will help you keep track of your exchanges for cryptocurrencies and will list the current market as well.

What Sets Cryptocurrency Apart from Regular Money?

Several things that set cryptocurrencies apart from traditional money. Understanding these critical differences between conventional currency and cryptocurrency may help you understand the demand for cryptocurrency and how it might benefit you.

No government involvement
Limited circulation (eliminates inflation).

Government bodies do not create or issue cryptocurrencies. Computer programs use highly sophisticated algorithms to identify new ‘coins’ and release them for public use. The combined user base of each currency, using vast amounts of computing power, record transactions between users in a peer-to-peer blockchain. The methodology used to create cryptocurrency keeps supplies limited and removes political or centralized decision-making from supply considerations.

Because there is a restricted supply of any individual cryptocurrency, the value of the currency will theoretically grow over time. Fewer coins will be required to pay for goods in the future because the growing supply of products or services will outpace the limited, or static amount of coins.

That is a deflationary model rather than the inflationary model traditional currency creates. Because an increasing supply of money decreases its purchasing power over time, prices typically rise with conventional currencies. That is not the case with cryptocurrencies, which makes them attractive investments to some people.

How Can It be Used?

Some of the benefits related to cryptocurrencies are the very things that set them apart from traditional money. One of the most significant benefits is the anticipated increase in the value of these currencies over time. However, this is still more theory than fact as these currencies have not been around long enough to establish this maxim as absolutely correct.

There are some benefits cryptocurrency users can enjoy right away, however. They include things like:

Security
Anonymity or pseudo-anonymity (some cryptocurrency services provide better standards of privacy or anonymity than others, but all are public transactions)
Easy transportability
No transaction fees
Easily facilitates international digital transactions
Eliminates intermediaries (like banks, exchange services, etc.)
No risk of hyperinflation

For now, cryptocurrency is used primarily as a type of investment, but there is no limit in sight for its use if it becomes more widely available, distributed, and accepted.

Bottom Line

The main thing that remains uncertain about the future of cryptocurrencies is government regulations. Throughout the world, governments currently seem divided about how to address the issue of cryptocurrencies and their legalities. When the use of cryptocurrencies becomes more commonplace, new laws and regulations are likely to appear. How will those new regulations impact cryptocurrencies and their usefulness?

Economists are uncertain about the future of cryptocurrency. It is still a relatively new technology without much history to base predictions. Proponents say it has unlimited potential, but many others say it has too many problems.