February 23, 2021 | AtoZ Markets – Cryptocurrency has been a hot topic for several years. Recently, its popularity has soared thanks to large investments by famous entrepreneurs and large businesses.
If you are like most people, you have a vague idea of what cryptocurrency is. You know that if you had bought Bitcoin in 2010, you would likely be able to retire right now. Outside of that, you may have little knowledge of what cryptocurrency is, how it works, and why it has any value.
What Is Cryptocurrency?
Cryptocurrency is a combination of two words. The first is crypto, which is an abbreviation of cryptography. In this context, cryptography refers to technology used to secure or hide information. The second word, currency, is simply a system of money that is being used.
You put those two ideas together and have electronic money, which has a mechanism to limit the number of units that can be made and security technology to prevent hacking and duplication.
There are thousands of cryptocurrencies on the market. Many of them share the same base technology. Some have spun off on their own and created a unique technology to back them. Since most people are familiar with Bitcoin, this cryptocurrency will be used as a stand-in for the other cryptocurrencies in the market.
Bitcoin is a cryptocurrency that works peer-to-peer. This means that there is no middleman handling transactions. You send money directly to someone, or they send money directly to you. Blockchain technology is used to record the transactions. It is decentralized. This means that there is not one central hosting location. Instead, it is hosted from various points around the globe.
Blockchain has a ton of benefits, including the fact that it is virtually impossible to hack. Since no single entity owns or controls the blockchain, there is no one to manipulate or control the value of the cryptocurrency.
How Do You Invest in Cryptocurrency?
A simple Google search on how to buy bitcoin will reveal several cryptocurrency exchanges. A cryptocurrency exchange is where you can change a fiat currency for cryptocurrency. You can also exchange cryptocurrencies for other cryptocurrencies.
There are several big-name players in this field. There are cryptocurrency exchanges for beginners, and there cryptocurrency exchanges for those who are more advanced. Before investing in cryptocurrency, it is good to investigate the exchange you want to use, learn about their fees, and see the pros and cons of this type of investing.
What Determines the Value of Cryptocurrency?
Bitcoin’s value requires scarcity, utility, divisibility, and transferability. These are the same things that give the paper dollar its value.
Cryptocurrency, like Bitcoin, experiences scarcity because there is a finite amount produced. Cryptocurrencies can be divided into smaller increments. This allows them to function as a medium of exchange. Cryptocurrency has utility. It is easy to move from one location to another, and it allows for the reliable trade of units of currency and goods. Cryptocurrency is durable, transportable, and is impossible to counterfeit.