As we all know, cryptocurrency is one of the digital currencies that has been rising in popularity in recent years. One of the most widely known cryptocurrencies is bitcoin.
In today’s all-digital era, even the use of digital currency is commonplace in various virtual transaction activities. In fact, many people are interested in investing in cryptocurrency.
However, even though investing in cryptocurrencies is indeed very profitable, there are some things you should pay attention to before buying this digital currency.
Well, in this article, let’s get to know more about cryptocurrencies and their types in the financial world.
What is Cryptocurrency?
A simple definition of cryptocurrency is a digital currency. This currency is certainly different from other currencies because this currency can be used to make virtual transactions. To maintain the security system in it, cryptocurrencies are protected by various passwords that are complicated to crack.
In addition, cryptocurrencies are also more decentralized, which means that there are no intermediaries in transaction activities in them. The payment system carried out in it utilizes digital currency and takes place peer to peer or from sender to recipient.
Even so, all transaction activities carried out in it will still be recorded on a cryptocurrency network system. This recording system will be carried out by cryptocurrency miners and they will get a commission in the form of digital money.
Because cryptocurrencies are more decentralized, cryptocurrencies require computers that are supported with special and sophisticated specifications. Usually, cryptocurrencies use a blockchain platform so that the digital currency in it can be used for transactions.
Blockchain itself is a data-based ledger in which anyone can access even if they do not carry out transactions. We will discuss more together below.
Cryptocurrency Platform Known as Blockchain
Basically, cryptocurrency is a derivative word that comes from the word cryptography or cryptography which means it leads to an agreement from its users and a storage process that is secured by various strong passwords.
The function of the blockchain itself is to be able to manage and maintain any additional data that has been stored in each block.
The various blocks that store the data will later be connected to each other and form a network that will be decentralized or peer to peer network.
In the blockchain, all data stored or recorded cannot be edited or falsified. Simply put, this blockchain system will allow users to trade gold via email.
As previously explained, this peer-to-peer network can present a new and efficient payment system and transaction process in the form of digital money.
Cryptocurrencies such as bitcoin have various separate networks, each of which has a complete record of all transactions that occur and the amount of balance held by bitcoin account users.
Types of Cryptocurrencies Currently Circulating
Cryptocurrency itself has basically started to be developed from the 1990s. However, this cryptocurrency was only famous about 10 years ago among the world community.
For now, the most widely used cryptocurrencies are Ethereum, Litecoin, Ripple, Monero, and the most well-known is bitcoin.
Apart from these various cryptocurrencies, there are still 1000 more cryptocurrencies currently scattered around the world.
Satoshi Nakamoto, as the creator of bitcoin, basically only created bitcoins of up to 21 million coins, this value was in accordance with the protocol that had previously been mutually agreed upon.
The number of coins is also predicted not to be mined until the year 2140. Everyone can make transactions using bitcoin via a computer without any intermediary banks or other well-known financial institutions.
Bitcoin mining activity itself tends to be minimal risk because it will not experience value loss, counterfeiting or inflation like paper currency or physical coins.
Transaction Mechanism
Cryptocurrency transactions are considered very attractive, because they are able to offer very high flexibility and can be done anytime and anywhere in all countries in the world.
Only with a smartphone, laptop or PC connected to the internet, each user can make transactions without the need for intermediaries. In fact, transaction activities in it can be completed in a matter of minutes without having to fear any downtime.
A simple example, when Person A wants to send money to Person B, then both parties will be given information related to the transaction value required. It will also be equipped with a digital signature via a private key into the cryptocurrency system they use.
Furthermore, transactions that have been completed will be stored permanently. No party can hijack, alter, and even falsify the transaction records.
Because the transaction records are permanent, every transaction made with this digital currency cannot be canceled for any reason. For this reason, high discretion is needed in every transaction in cryptocurrency.
Cryptocurrency Miners Job
Basically, everyone has the same opportunity to become a cryptocurrency miner or cryptocurrency mining. Those who do this mining are referred to as miners or miners.
As miners their role is indispensable because by nature, this decentralized network does not have a central authorization to perform a division of tasks.
In addition, cryptocurrency activities also require a system that is able to prevent any individual from committing fraud or abusing certain networks.
Therefore, the role of these miners is created as if they are working together by confirming and verifying every record and transaction that occurs in the system.
So, if someone falsifies transaction data, the system in it will know and the perpetrators in it will be punished. The form of punishment carried out can be direct, precise and also accurate, according to various mathematical logic that exist in the cryptocurrency system.
To become a miner, every prospective miner must be able to solve a cryptological puzzle in the form of a difficult math problem. This math problem was created by the creator of bitcoin, namely Satoshi Nakamoto.
If the puzzle is successfully solved, the potential miners have a block in which they can add a blockchain system.
They will also be authorized to reproduce cryptocurrency transactions into the system which will automatically assign a certain amount of bitcoins to it.
How to Determine Cryptocurrency Value
Since cryptocurrencies are created using uniquely encrypted cryptography, don’t be surprised if their value depends on the mechanisms that exist in the market.
Please note, the value of each type of cryptocurrency is the same as other commodity products, which when the demand for cryptocurrency is very high and there are few miners, the value of the cryptocurrency will increase.
A simple example is bitcoin which from the beginning was created to this day only 21 million coins are available, so the value of bitcoin cryptocurrency will tend to be more expensive than other types of cryptocurrencies.
That means, the value of cryptocurrency is more volatile and will easily decrease or increase based on the availability and trust of users in cryptocurrencies.
A few years ago even the value of cryptocurrencies was affected by the wannacry attack which could automatically increase the value of transactions using cryptocurrency.
You need to know that the first rank of cryptocurrency activity is currently held by bitcoin with a market capacity value of USD 63.6 billion, then the second rank is held by Ethereum which has a capacity value of USD 12.9 billion.
Transaction Activities
For those of you who have been mining cryptocurrencies on a regular basis, then you have started to be able to use the virtual currency to perform several types of transactions.
Transaction activities that you can do start from buying and selling activities on the stock exchange, exchanging them into conventional currencies, making digital currency payments, to doing mass funding or crowdfunding.
In fact, currently you can do the cryptocurrency futures exchange market in America, namely on the Intercontinental Exchange (ICE), Chicago Mercantile Exchange (CME), Chicago Board Options Exchange (CBOE), etc.