In today's technology-driven society it is important to keep up with every new invention to guarantee you're taking advantage of everything the market has to offer. One of those revolutionary, technological inventions are cryptocurrencies.

Let's start with the basics. If you read the word cryptocurrency what is the first thought in your mind? Did you think of digital money? Well, you're right!

Cryptocurrency is "decentralized digital money, based on blockchain technology". If this definition sounds a little confusing, don't worry, after reading this article you will understand what it means.

In this article you will learn about cryptocurrency, how it works, what does decentralized or blockchain mean, and how you could use it.

You have probably heard of Bitcoin or Ethereum, which are the most popular versions of cryptocurrency in the market. But these currencies aren't the only ones, there are around 5,000 other cryptocurrencies currently circulating in the world.

People interested in cryptocurrency usually see it as an investment opportunity, but you should know that you can also use it to buy regular goods and services.

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Crypto is not physical money, cash, or coins you have in your wallet, it's a currency that works for trading/ trade or transactions made for investing or to buy things at a price. Photo by Josh Appel on Unsplash

Even though this topic can be exciting and fascinating, it shouldn't be taken lightly. If you want to purchase cryptocurrency you must take some time to do thorough research and once you fully understand how the system works, you can consider going ahead with the purchase.

For more details, go read about the Best way to use Cryptocurrency and guarantee you make the most of it.

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How does cryptocurrency work?

When people think of money they imagine cash and bank transactions, but that is not the case with cryptocurrency. This is a digital, encrypted, and decentralized system of exchange.

Another way to understand it is by comparing it to other currencies. The Dollar, Euro, and every other currency in the world (except for cryptocurrencies) have central authorities that manage and maintain them. In the case of cryptocurrency, there are no central authorities managing the money. Instead, the tasks are distributed among various users on the internet.

Satoshi Nakamoto, a presumed pseudonym, is the person who developed Bitcoin. He worked to create what he defined as an electronic payment system "based on cryptographic proof instead of trust.” This is how Bitcoin was born, as a peer-to-peer digital cash system.

Nakamoto invented this "cryptographic proof" by creating transitions that would be recorded and verified with a program called blockchain.

If you are looking for a project to invest in and cryptocurrency has caught your eye, learn more about it on Is cryptocurrency a good investment?

What is blockchain?

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The key to crypto technology and exchanges depends on your financial situation and the amount of research and work you do since this is not an easy market to understand. Photo by Scott Graham on Unsplash

The easiest way to define blockchain is by describing it as a list of records, each record is identified as a block, and these blocks are linked using cryptography. Cryptography is the development of techniques for safe and secure communication (security being its most important asset), the word originates from Ancient Greek and it basically means "hidden secrets".

In this blockchain system, each block has a piece of cryptographic data of a previous block, transaction data, and a timestamp. In other words, a blockchain is a ledger that records transactions in code and works like a checkbook but is distributed across endless users and a network of computers around the world on a peer-to-peer system.

By now we hope you realized that the name is literal, each transaction is recorded as a "block" and they are all linked together with a "chain".

Remember that blockchain is a decentralized, distributed, and often public not private, digital ledger system. The fact that many computers are involved and that it works like a chain makes this system safe and impossible to alter without the alteration of all subsequent blocks.

Another way to look at it is as you were writing down every expense and transaction you make in a book. Each page of the said book would be the block and the entire book is the blockchain.

Now imagine this, people who use cryptocurrencies like Bitcoin and Ethereum have their own copy of the book and all the transactions are unified and recorded in it.

If you're wondering about the possibility of fraud, trust us, you're now the only one. The engineers of cryptocurrency came up with validation techniques to prevent fraud, and these are proof of work or proof of stake.

Finally, you should also learn about mining. Bitcoin mining or miners are people who add new blocks to their blockchain. This might sound simple but it is quite complicated in real life. The mining race is like a competition going on all the time around the world where miners win the right to add new blocks to their blockchain.

Miners on the mining race compete for block rewards and transaction fees and the level of difficulty is increased every time there are more miners involved.

Continue learning about this subject on How many cryptocurrencies are there and which are the best ones?

How to use cryptocurrency?

Cryptocurrency was created with the idea of getting rid of money and our wallet. If you have a digital form of currency, there is no need for cash or coins anymore.

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There are no coins, the coin in bitcoin just refers to money or cash, but this is a digital form of currency used for trade, exchanges, and transactions. Photo by Christine Roy on Unsplash

However, cryptocurrency is not yet a popular form of payment. We say "yet" because crypto is working its way through the market and in the near future it will be part of everyone's financial life.

If you want to use cryptocurrency you need to consider that currently it is not widely accepted. However, there are private companies that do accept Bitcoin. According to Forbes, companies like Dunkin Donuts, Target, Apple, and some select restaurants accept Bitcoin.

There's also the possibility of loading a debit card with cryptocurrency and buy things with it. The way it works is that the debit card converts the crypto assets into dollars but you will have to pay some fees to use it. This card is a great option since the things you can buy with cryptocurrency are limited, but not impossible.

Finally, keep in mind that people choose to invest in crypto, as you would invest in bonds or stocks. If you are wondering whether cryptocurrency is legal or not you need to read more about the Legality of Cryptocurrency.

Basics on cryptocurrency

We hope this information helped you learn about cryptocurrencies like Bitcoin or Ethereum. Keep in mind that the key factor of cryptocurrency are these elements called blockchains which users can exchange or trade in the market.

Another important factor to understand is the network of computers that work together to store the blockchains which makes crypto a decentralized system.

There are many other things to pay attention to and worth some deeper research. For example, the functionality of the validation techniques proof of work or proof of stake, mining races, types of cryptocurrencies, investing opportunities, debit cards that work with cryptocurrencies, and more.

computers, coding, cryptocurrency, blockchain
Crypto is digital, which means it's in computers, not in the bank, public, or someone's wallet, and the is no set or central price, and Bitcoin and Ethereum are the popular cryptocurrencies. Photo by Markus Spiske on Unsplash

You can always look for a network of people interested in cryptocurrency and try to learn from them. You can also ask for Bitcoin advice if you hire a financial tutor or accountant to teach you about exchanges, currencies, trading technology, and more.

If you wish to start using cryptocurrency you have to know that there is a higher level of security involved with the network. Learning about cryptocurrency can be fun and useful if done safely!

For more information on this subject check out A Guide to Cryptocurrency.

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