You’ve probably heard the term “bitcoin” in the last few years. This is just one of many cryptocurrencies currently being used. If the thought of a cryptocurrency sounds a little confusing, you’re not alone. It’s an unusual financial market, but it does have its advantages.
What Are Cryptocurrencies?
According to Investopedia, cryptocurrencies are digital or virtual currencies that also have the added benefit of cryptography as a security feature. This added layer of security makes it highly difficult to counterfeit.
Another big difference is how the currency is issued and governed. It’s considered an organic currency because it’s not actually issued or governed by any type of central authority. This also leads to a more anonymous nature. The value fluctuates based on supply and demand.
Is Bitcoin the Only One?
Most of the time, you just hear about Bitcoin, but it’s far from the only type. CryptoCurrency Market Capitalizations lists over 800 types of cryptocurrencies, along with their value and circulating supply. Some of the most popular are:
- Ethereum Classic
At the time of writing, the market cap or total value of all cryptocurrencies was over $86 billion.
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Why Are They so Popular?
When you have cash and credit cards, why would you possibly need yet another type of currency? The two biggest reasons for the sudden rise in popularity are anonymity and no government or central bank control.
Cryptocurrency transactions don’t contain personally identifying details, such as routing numbers. This makes them anonymous and in some ways, more secure. However, cryptocurrencies are not immune from hacking.
Another benefit is the ability to use them around the world without excessive fees. For instance, an international wire transfer will empty your wallet in fees, but cryptocurrencies usually keep the same fees no matter where you use them.
To create value, cryptocurrencies are limited. For any set currency, there is only a set number. As demand rises or falls, so does the value of each piece of currency. Values can range from $1 or less to thousands per coin.
All of these reasons are part of why cryptocurrencies are often used for criminal activities, such as asking for a ransom paid in Bitcoin with the recent WannaCry ransomware. However, this doesn’t mean they’re not useful for legitimate transactions.
What Is Cryptocurrency Mining?
Cryptocurrency mining is the foundation of how cryptocurrencies are released and used. Most users never deal with the mining part because it’s usually difficult to profit from it after paying for the hardware, algorithms, and higher electricity bills (hardware runs constantly to mine).
Every cryptocurrency has a set number of blocks (cryptocurrencies work in a blockchain format). For instance, Bitcoin only has 21 million blocks that can be released ever. At that point, no more are created. Highly sophisticated algorithms measure the flow of the currency to know when to release more of the currency into circulation.
Low-value cryptocurrencies, such as Dogecoins and Litecoins, are usually the best options for making at least a small profit. In most cases, it’s better to just buy the currency and hold on to it if you want to profit at all.
It’s a unique market, but one that bears watching as an alternative or compliment to current economic markets.
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