Crypto Guide: What is Cryptocurrency?
Cryptocurrencies have changed the way money is moved and also opened up a volatile world of unimaginable trading and investment opportunities. Read here about the history, blockchain technology, revolutionary payments, and how convenient it is to trade the major cryptocurrencies with forex brokers.
The first cryptocurrency (bitcoin) was established in 2008 when the pseudonymous Satoshi Nakamoto invented a decentralized electronic cash system which uses a peer-to-peer distributed timestamp server to prevent double-spending. This distributed server generates computational proof of the chronological sequence of transactions.
Every bitcoin transaction receives a digital timestamp when it is confirmed.
Revolutionary Blockchain Technology
In the process of inventing this payment system, Satoshi also pioneered the first blockchain database, an essential component of this system. Since then, many other cryptocurrencies have emerged of which most use more or less the same type of blockchain technology as bitcoin.
What’s so amazing about blockchain technology, is that it can be used to improve many different processes in different industries. For example, certain role players in the financial services sector have started using blockchain technology to implement systems which are much more transparent, effective, and cheaper. The blockchain automatically executes certain functions when certain conditions are met. These smart contracts are also self-maintained.
What is a Cryptocurrency?
A cryptocurrency is a digital or virtual currency which is usually created by computers performing painstaking mathematical computations and thereby converting electricity into long strings of code that have monetary value. This computing is done in a distributed network and is called cryptocurrency mining.
Although not all cryptocurrencies are created in this way, most of the prominent ones are. The algorithm which is normally used to mine cryptocurrencies is a decreasing-supply algorithm which limits the supply of these cryptocurrencies using encryption techniques.
To put it in simple terms, this type of algorithm ensures that, as more and more of the cryptocurrency is mined, it becomes progressively more difficult and resource-intensive to mine. When the supply of a currency is limited, it can help to secure its value.
Cryptocurrency mining becomes progressively more difficult and resource-intensive, just like the mining of natural minerals.
The encryption techniques used to mine cryptocurrencies, coupled with blockchain technology, are also used to facilitate the verification of fund transfers between users of the specific cryptocurrency.
Bitcoin miners are rewarded for both processing payments on the Bitcoin network and for mining new ‘blocks’.
About Cryptocurrency Payments – Bitcoin Example
Bitcoin Transactions Are:
- Irreversible – After a bitcoin transaction has been confirmed it can’t be reversed by anyone.
- Cheap – A bitcoin transaction can move thousands of dollars with a minimal transaction cost, which is on average less than one U.S. dollar. The cost of bitcoin transactions varies, depending on the required transaction speed.
- Fast – The speed at which transactions can be processed depends on how much users are willing to pay. Bitcoin transactions can generally be confirmed within a few minutes.
- Global – Bitcoin can be sent to basically anyone, anywhere in the world.
Bitcoin transactions are pretty fast!
Some of the largest cryptocurrencies (by market capitalization) include bitcoin, ether (ethereum), ripple (XRP), litecoin (LTC), and dash. While there are hundreds of different cryptocurrencies, only a handful can be considered highly tradable, well-established, and liquid.
Easy Access to Trading/Speculating With Cryptocurrencies
Certain retail forex brokers facilitate the effortless trading of major cryptocurrencies in the form of contracts for difference (CFD’s).
This enables cryptocurrency traders to engage in both long (buy) and short (sell) crypto positions on the superb trading platforms offered by these brokers. To make crypto trading even more exciting, many forex brokers offer leverage (gearing) on cryptocurrency trades.
*Check out our handy guide, How to Choose the Right Cryptocurrency Broker.