A Guide To The World Of Cryptocurrency

The world is evolving with the progress in technology. This has led to the digitization of everything. The banking outlets are getting replaced by digital applications. Like everything, money has also transformed into digital currency, better known as cryptocurrency. Let's have a deep look at the term cryptocurrency.

What do you mean by cryptocurrency?

A cryptocurrency is a form of virtual money that is secured by using the technology of cryptography. Primarily, cryptocurrencies are based on blockchain technology, which uses the distributed ledger system enforced by shared nodes or computers. These currencies are not issued by any central authority, thereby eliminating the involvement of intermediaries.

How is it created?

Cryptocurrencies can be created by mining or purchased on the exchange platforms such as Coinbase. They are also traded on specific sites. For instance, Bitcoin is traded via at this link.

Why has digital currency gained so much popularity?

Digital currency is highly volatile, which means that the price increases and decreases within days. The past few years have witnessed skyrocketing values and an immense surge in the rates of cryptocurrencies, particularly Bitcoin. 

This sudden increase has led the stockholders to consider investing in digital money, thus making it popular globally.

What are the types of cryptocurrencies?

Every country has a particular currency in the traditional market. For instance, the United States has USD, and the United Kingdom has GBP. 

Similarly, there are so many cryptocurrencies discovered so far. But, Bitcoin stands out among them and is highly popular. All other currencies that Bitcoin is termed as Altcoin or alternative coin. 

Is it legal to trade on cryptocurrencies?

The currency in traditional markets or fiat currency is enforced by some laws and legislations operated under a central authority. Digital currency lacks this element. Any government or private organization does not back them. It is totally legal to buy Bitcoin in Canada and trade it with others.

This factor has challenged the legality of cryptocurrency. Some countries have imposed a strict ban on it. 

After December 2021, EI Salvador has allowed Bitcoin to trade legally, whereas other countries operate it according to the jurisdiction.

Japan's Payment Service Act considers it legal. In June 2021, the European Union issued Markets in Crypto-Assets (MiCA) to establish safe laws for trading in cryptocurrency.

What are the advantages of digital money?

Cryptocurrencies aim to innovate the infrastructure of trade and finance. This revolution has provided some advantages as well as disadvantages. The benefits are listed below:

• The system of cryptocurrencies is entirely decentralized. This means it does not involve any third authority for transactions between two parties. This eliminates human error; therefore, the dealings made are free of inaccuracies.
• The digital market is transparent as it works on the principles of the blockchain system. It means that several computers or nodes are connected in a network, and all other users validate a change in any single one. It leads to enhanced clarity.
• The transfer of amount in decentralized financial systems is secured by public and private keys, making it highly secure.
• The transactions are processed within seconds, thereby saving time for the user.
• Like central authority charges for sending money in fiat currency, the fund's transfer in digital currency requires less to no costs.

What are the disadvantages of cryptocurrency?

Apart from advantages, cryptocurrency has certain disadvantages as well. These are explained below:

• The digital transactions are not anonymous. Instead, a pseudonym is used as the name of the sender. The accountability bureaus can track the dealings with the fictitious name.
• Cryptocurrencies have provided a platform for criminals to perform illicit activities. 
• The mining of cryptocurrency uses high energy, which can sometimes be equal to the energy used by a country. This makes them so expensive.
• There is always a risk of malware or hacking.
• The price volatility can lead to significant losses.

Wrapping it up

In a nutshell, digital currency is a massive revolution in technology, but it has some critical disadvantages. An investor must keep them under consideration before putting capital into the world of cryptocurrency.