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Understanding the Fundamental Concepts of Cryptocurrencies

Photo by Art Rachen on Unsplash

There is no denying that cryptocurrencies have become a hot commodity in today’s world. As the industry continues to thrive, more people are curious in joining its rapidly growing community. As a result, specific terminologies like blockchain, non-fungible tokens, and decentralized finance have become more widespread.

While the jargon can be intimidating and overwhelming to the uninitiated. Knowing the meaning behind each vocabulary is necessary to understand the fundamental concept of cryptocurrencies thoroughly.

First off, cryptocurrency is define as a digital currency designed to work as a medium of exchange. It uses cryptography to secure and verify transactions, as well as to control the creation of new units of a particular digital currency. The most famous examples are Bitcoin and Ethereum.

The unique thing about these virtual assets is that unlike legal tender, they are generally not issue by any central authority. Instead, they exist on a decentralized technology called blockchains, a distributed database that stores information electronically in digital format. 

To obtain the currencies, a process called crypto mining is done wherein high-power computers, also known as nodes or mining rigs, validate blockchain transactions or solve complex mathematical problems to earn coins. 

Fundamental Concepts of Cryptocurrencies

As for the already mined coins, users can purchase these currencies from brokers. Subsequently, these can then be store with the use of encrypted wallets. Furthermore, they can also be spent or invest in other crypto ventures such as NFT projects. 

Several individuals can be credit for the rise of the crypto industry. The most notable among them are currency creators such as Satoshi Nakamoto. He who develop Bitcoin and whom many refer to as the “Father of Cryptocurrencies.” Vitalik Buterin, who is known for building Ethereum (ETH), is also an influential driving force in the industry. 

Reasons Why Cryptocurrencies Are Popular

There are numerous reasons why cryptocurrencies have become so popular. But primarily, it is due to the plethora of benefits and advantages it provides. For example, they are essentially immune to government interference or manipulation because of their decentralized nature. 

Likewise, it is not tie up to the financial status of any country, which makes it an ideal investment for many. On top of that, it offers an excellent source of potential profit due to its fluctuating price. As a result, a lot of people buy the coin at a low price and sell it once prices start to rise.

But perhaps what makes cryptocurrencies so in-demand now is that most people think it is the future. After all, crypto has created significant technological advancements and innovations.

On the flip side, interested individuals should still exercise caution when diving into cryptocurrencies. One important thing to note is that coin prices tend to be highly volatile as it is still a relatively new industry. In addition, it is influence by several factors, such as its limited supply and the exponential increase in demand.

As is with all things, cryptocurrencies have their pros and cons. Nevertheless, learning about what cryptocurrency is and how it works is a great starting point. For those who wish to partake in the remarkable industry and join its equally impressive community.

Opinions expressed by Coin Week contributors are their own.