Cryptocurrency takes everything about traditional currency and turns it on its head. It’s a digital currency powered by cryptography, a built-in security feature that makes it difficult (if not impossible) to counterfeit, with most operating through blockchain technology. It’s decentralized, meaning that instead of an institution acting as a gatekeeper, a network of computers both maintain distributed ledgers and run the programs that maintain the currency’s authenticity requires understanding the relationship between risk and reward, technical analysis, emotional control, and other complex market factors. As a result, the best cryptocurrency trading courses outline the fundamentals of cryptocurrency as they relate to these and more traditional trading strategies.
How Does Cryptocurrency Work?
In the 1990s, everyone was talking about how to build the first decentralized currency system that could transcend traditional financial institutions, be above complications such as exchange rates, and remain immune to organizational interference (i.e., governments, for example). The first cryptocurrency, Bitcoin, was created by Satoshi Nakamoto in the pursuit of decentralizing the financial system. There’s no central bank or authority, and all transactions are maintained through a disparate network of computers that manage the records. The cryptocurrency market works like this. You purchase a “token” from your cryptocurrency of choice and use it to buy things online. There’s no need to worry about exchange rates because the work is done for you. By switching to bitcoin cash, you’re able to make transactions online safely. The tokens represent entries in a public ledger. The entries use encryption methods like public key and private key pairs or hashing functions. Bitcoin retains the lion’s share of the market, but other “altcoins” (Ethereum, litecoin, ripple/xrp, monero) are getting more popular.
In the absence of a central authority, there’s a lot of room for experts to build careers both within the cryptocurrency and as a critical business skill. Virtual currencies could change the way we do just about everything with the cryptocurrency system forming the basis of activities previously served by traditional financial institutions. Understanding how cryptocurrency exchanges operate and what makes these revolutionary financial transactions so, well, revolutionary puts you at the forefront of a business world built around open-source, peer-to-peer (p2p) markets.
Key Takeaways
- Transactional freedom, security, and ease of transaction are among the most important advantages of cryptocurrency.
- Many cryptos are designed to have unique advantages over fiat currencies or the traditional banking system, even if they don’t have widespread use or adoption yet.
- Those interested in buying, selling, and trading crypto would be wise to do their research before getting involved in the crypto market.
- Some cryptocurrency projects take measures to become more efficient or resource-intensive
Benefits Of Cryptocurrency
The primary benefit of Bitcoin and most other cryptocurrencies based on blockchain technology is that many of them lack a central authority, payment processor, or company owner. From this stems several other benefits, such as ease of transactions, potential for a higher return for traders, and even relatively good network security Since crypto networks tend to be peer-to-peer, meaning that people can transact directly with one another.
- Easy Transactions
Crypto transactions can be made easily, generally at a low cost, and in a relatively private manner. Using a smartphone app, hardware wallet, or exchange wallet, almost anyone can send and receive a variety of cryptocurrencies Some types of cryptocurrencies, including Bitcoin, Litecoin, and Ethereum, can be purchased with cash at a Bitcoin ATM. A bank account isn’t always required to use crypto, so it’s possible that someone could buy Bitcoin at an ATM using cash, then send those coins to their digital wallet or phone. This may be a huge advantage for people who might lack access to the traditional financial system.
- Relatively Secure
Because cryptocurrencies are rooted in cryptography and blockchain security, decentralized cryptocurrencies tend to make for secure forms of payment. As such, the relative security of cryptos may be one of the biggest benefits for users Crypto security, in large part, is determined by hash rate. The higher the hash rate, the more computing power is required to compromise the network. Bitcoin is considered to be the most secure cryptocurrency, as it tends to have a higher hash rate than other networks Note, though, that using a crypto exchange is only as secure as the exchange itself, however. Most incidents of crypto being hacked involve exchanges being hacked or users making mistakes, like falling for phishing scams.
- Short Settlement Times and Low Fees
While some people may only want to invest in cryptocurrency to take advantage of (prospective) price appreciation, others might find benefit in the ability to use crypto as a medium of exchange Bitcoin and other transactions can range from a few cents to several dollars or more. Other cryptocurrencies, like Litecoin, XRP, and others, might be able to be sent for less. Payments for most cryptos settle within minutes and some within seconds. Conversely, wire transfers at banks can cost significantly more, and often take three to five business days to settle.
- Exponential Industry Growth
The cryptocurrency industry has been one of the fastest-growing markets that most of us have seen in our lifetimes, especially since the industry got its start with the debut of Bitcoin back in 2009. The total market cap of the cryptocurrency market in 2013 was about $1.6 billion. By September 2022, it’s worth more than $930 billion. That, too, is including the so-called crypto winter that the crypto markets experienced for much of 2022 So, while the industry as a whole has seen incredible growth over the past decade, it’s important to keep in mind that markets ebb and flow.