What is cryptocurrency? Understand at once
What is cryptocurrency complete guide: In recent years, the term has obtained popularity in the world of finance. After all, what are virtual currencies, or what is a cryptocurrency, and how do they work?
You have probably heard about bitcoin, that virtual currency made some people make a lot of money – and some lose as much. Maybe you heard about another digital currency and wondered, after all, what is cryptocurrency? It’s all the same thing? What’s the difference? Is it to buy or invest?
What is cryptocurrency?
Cryptocurrency is the generic name for decentralized digital currencies, created on a blockchain network from advanced encryption systems that protect transactions, their information, and the data of those who transact.
Do not understand anything? No problem, we’ll explain it step by step.
Cryptocurrencies are digital currencies because, unlike the real, the dollar, and other currencies that can be touched, they only exist on the internet. That is, you know that they are real, but you cannot catch them with your hands – or keep them in your wallet, in the safe, or under the mattress.
Decentralized because nobody or government is responsible for controlling, intermediating, and authorizing currency issues, transfers, and other operations. Users do this themselves.
Created on a blockchain network because it is this technology that is behind cryptocurrencies. Blockchain is a system that allows the sending and receiving of some types of information over the internet. They are pieces of code generated online that carry related information, like blocks of data that form a chain – hence the name “chain of blocks.”
And in cryptography systems, this layer of security, guaranteed by the blockchain, enables the issuance and transaction of virtual currencies more securely – when done correctly. It is from this technology, even, that the name cryptocurrency comes – cryptocurrency.
Are cryptocurrencies safe?
One of the pillars of cryptocurrency is encryption: an online security layer that greatly hinders fraud.
In a very simplified way, encryption is a way of shuffling information so that only those who have the code – also called the “key” – can decipher it.
What can happen – and has already happened – is that digital wallets or bitcoin brokers are stolen. In 2019, one of the world’s largest cryptocurrency brokers reported that hackers had stolen $ 40.7 million in bitcoins using techniques like phishing and viruses.
The lack of regulation of digital currencies can also be a problem – and the Central Bank of Brazil itself warns of the risks on its website. Hacker attacks, server errors, and loss of virtual signature are some of the dangers that can lead to the loss of all cryptocurrencies – and, consequently, of a high financial value.
Why did cryptocurrencies become so famous?
In recent years, cryptocurrencies have gained news worldwide mainly because of bitcoin, the world’s first digital currency, and its high volatility.
Like any other currency, bitcoin undergoes daily variations and follows the law of supply and demand: the more people wanting, the more expensive it gets – and vice versa.
But it has a huge fluctuation. In December 2017, for example, a bitcoin was worth R $ 48.2 thousand. Just over a year later, in January 2019, the value had dropped to R $ 12,700 – a devaluation of almost 75%.
This fluctuation in cryptocurrencies happens for a few reasons. The amount of available bitcoins is limited: a maximum of 21 million coins can be issued – by 2019, an estimated 18 million had already been given.
Another reason is that, like the stock market, the bitcoin market also operates from speculation. If people feel that the investment is not safe (because a cryptocurrency broker was stolen, for example), many sell their coins, and the price plummets. If, on the other hand, the investment seems attractive, a lot of people wanting to buy makes the price increase.
Therefore, bitcoin – like other cryptocurrencies – has come to be seen as a form of investment more than a currency for everyday transactions.
And what are the leading cryptocurrencies?
In recent years, several virtual currencies have emerged – there are already more than 2 thousand available -, but the main ones, by market value, are:
- Bitcoin ;
- Ethereum ;
- Ripple ;
- Litecoin ;
- Bitcoin Cash ;
- EOS ;
- Binance Coin.
How to buy cryptocurrencies?
Buying cryptocurrencies is simple: open an account with a virtual currency broker and start trading. First of all, it is essential to research the companies available on the market, check customer reviews and understand the fees charged.
After all, this is a financial investment and, like any other, needs to be treated with care.
It is also important to remember that investing in cryptocurrencies presents a high risk since the value varies a lot over time. Therefore, experts recommend placing only a small portion of investments in this type of asset.
How do cryptocurrencies impact your life?
Currently, unless you are an investor or enthusiast of cryptocurrencies, the truth is that they have little impact on the lives of the general population.
For many years, the market looked at bitcoin as a new transaction currency. In Brazil, real estate companies announced that they would accept digital currency as a form of payment.
Gradually, however, cryptocurrencies have come to be increasingly seen as a financial asset – so much so that, today, little is said about using bitcoin to pay for a product, for example.
Anyway, many people discuss the role of cryptocurrencies in the future. Some say that this will be the main form of transaction in a few years, but it is too early to tell.
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