For some, cryptocurrencies are a mystery. For others, an incredible investment opportunity.
Countless entrepreneurs and investors claim to have made a fortune by investing in cryptocurrencies. But what’s the real deal?
In this post about cryptocurrency education, we are looking into the basics of crypto trading. What is cryptocurrency? Why you should care about cryptocurrency? Read on to find out!
Bitcoin, Litecoin, Ethereum and thousand other coins are now in the market, but it all started in 2008 with Bitcoin.
Before we move forward, we should look into some definitions first.
Cryptocurrency is a digital form of currency created to function as a medium of exchange. It is a virtual asset that works much like money, but without a centralized authority to control it. Instead, cryptocurrencies use advanced cryptography to secure transactions and prevent counterfeiting.
Cryptography is the science of creating mathematical codes. It uses algorithms to scramble information into an encrypted format. This encrypted information can be transmitted securely and descrambled by whoever receives it.
The decentralized control of cryptocurrencies sets it apart from trust-based monetary systems. Cryptocurrencies are peer-to-peer and rely on cryptographic technology to protect your assets. This means that cryptocurrencies are actually more like stock than conventional money.
In the world of cryptocurrencies, conventional money is known as fiat money. Fiat money represents all paper notes, coins, bonds, currencies, and conventional bank accounts.
Cryptocurrencies are traded in tokens. Tokens represent the amount of a cryptocurrency you own. Traders hold their tokens in their digital wallets, which are protected by a private key. There are several types of tokens. Tokens come in all denominations and you can trade them freely to other owners.
How Do Cryptocurrencies Work?
Cryptocurrencies are “stored” in databases. Any cryptocurrency represents a network of peers who are also its owners. Every peer has a record of the whole history of all transactions of that currency. So, each trader has access to the balance of every account in the network.
With cryptocurrencies, transactions are files that state the exchange of a token between two peers in the network. After the transaction goes through, it needs to be confirmed and recorded.
So, how is value generated?
Since cryptocurrencies are decentralized, anyone could create countless peer accounts and abuse the system. To prevent that, owners need to “mine” cryptocurrencies in order to confirm the transaction.
The act of “mining” is nothing more than solving a cryptographic puzzle that connects the new block in the blockchain. It is that work of mining that creates cryptocurrency value and ensures that they can’t just be counterfeited.
Once a transaction has been confirmed, it is recorded in the network and becomes an official new “block” in the blockchain.
The Importance of Bitcoin
There are more than 4000 cryptocurrencies, but the most stable and secure is still Bitcoin. As the first cryptocurrency, Bitcoin is the “golden standard” of cryptocurrency technology. It is the single cryptocurrency that has made people more money than any other.
Bitcoin clocks more than two hundred thousand transactions each day. If you wish to invest in a cryptocurrency, you should start with Bitcoin.
What Makes Cryptocurrencies so Unique?
Bitcoin and all other cryptocurrencies come with a unique set of properties that makes them very attractive in modern markets. Let’s see what makes cryptocurrencies so unique below.
There are no banks or governments controlling cryptocurrencies. They are not built upon trust or authority, but on math and technology. This means that nobody can block the transaction and there are no restrictive monetary policies about these assets.
Crypto transactions don’t reveal the identities of the parties involved in it. Crypto coins move from address to address, which are nothing more than 30-character-long randomly generated chains. It is not possible to connect the transaction to a real-world person.
After a block has been added to the blockchain, nobody can reverse or cancel the transaction. This extreme security works both ways. On one hand, nobody can dispute your ownership. On the other hand, if scammers and hackers take away your money, you can’t do anything about it.
Cryptocurrency transactions take place globally at the speed of light as soon as they are confirmed to the blockchain. This kind of efficiency is unmatched. You can make these transactions regardless of location and buy things from across the world without any of the usual lag.
The cryptography behind crypto coins mean they are almost impossible to hack. Even if someone tries to hack them, they would be better off mining them with the same resources. This means there is no real risk to your wallet as long as your password is safe.
Fixed Supply and No Inflation
Since no central bank can print more crypto coins on demand, the supply is controlled and globally known. Bitcoin will reach its final number sometime in the 22nd century. The programming that goes in each cryptocurrency is the only thing that controls this.
Finally, fiat money represents a form of debt in the global banking system. Each banknote you hold is a debt of the state towards you. However, cryptocurrency does not represent anything else apart from themselves.
Continue Your Cryptocurrency Education at 3Commas
Now that you’ve started on your cryptocurrency education, it is time to explore some of the best tools to trade cryptocurrencies online. Here at 3Commas, we specialize in cryptocurrency automation tools that will enable you to trade efficiently.
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