Cryptocurrencies: What they are and how they work.
July 19, 2022
Cryptocurrencies are digital currencies that allow you to buy goods and services, use applications and trade them for a profit without the need for a central authority such as a government or bank. Let’s look a bit more closely at what these currencies are and how they work.
How they work
The popular Bitcoin and other cryptocurrencies are enabled by a technology called blockchain, which is a digital ledger that stores transaction records and keeps track of the owners of these transactions or data. This blockchain technology solves a problem that existed with earlier attempts to create entirely digital money, prohibiting users from duplicating their holdings and attempting to spend them twice.
Individual cryptocurrency units are referred to as coins or tokens depending on what they are used for. Some cryptocurrencies are designed to be stores of value, while others are intended to be used as a medium of exchange for goods and services. Others can be used to participate in particular software projects like financial services and governance.
How they are created
A common way to create cryptocurrencies is by mining, which is also how the well-known bitcoin is created. Computers use the mining process to crack difficult logic puzzles that verify the validity of network transactions. As compensation for the validation procedure, the owners of these computers will receive newly minted cryptocurrency. Compared to the other various ways that multiple cryptocurrencies utilize to manufacture and distribute tokens, mining is an energy-intensive operation that has a higher impact on the environment.
Here is a list of some popular cryptocurrencies as of 2022.
- Bitcoin (BTC)
- Ethereum (ETH)
- Tether (USDT)
- USD Coin (USDC)
- Binance coin (BNB)
- Ripple (XRP)
- Cardano (ADA)
- Solana (SOL)
- Dogecoin (DOGE)
- Shiba Inu (SHIB)
How to choose a cryptocurrency
It’s important to note that Bitcoin is distinct from other forms of cryptocurrency. The market is huge, even though Bitcoin was the first and most valuable cryptocurrency.
Even if Bitcoin was the first and most valuable cryptocurrency, there is a huge industry. Approximately 20,000 distinct cryptocurrencies are currently traded publicly, and that figure is steadily growing.
While some of these have market values in the hundreds of billions of dollars, others are obscure and essentially useless.
If you’re thinking about investing in cryptocurrencies, starting with one that is well-known and has a large trading volume can be advantageous (although there is no guarantee of success in such a volatile market).