We have to start by saying that cryptocurrency is an unfixed, decentralized, and digitally-encrypted currency system validated and stored by blockchain, which is an entirely different approach when compared with financial institutions and government regulations.
The first one that entered the market was Bitcoin in 2009, and it started as a response to the housing market crash and banking crisis. However, since the beginning, thousands of cryptocurrencies entered the market and failed along the way.
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The Cryptocurrency Terms You Should Remember
- Altcoins – Altcoins is the term for alternative coins, and it represents every single cryptocurrency that exists apart from Bitcoin.
- Blockchain – We have mentioned above that cryptocurrency depends on blockchain technology that records the transactions. It is a public record used to prevent frauds and to verify the transactions. Remember that each transaction is recorded on blocks, and the new block is added to the chain every ten minutes.
The Creation Process
The main idea of cryptocurrency is that they enter the economy and market through the process of mining. However, the question lies in the plan of how something artificial does become a regular and legitimate currency that people use.
Remember that creation depends on three essential things:
- It requires people that believe in the idea and purpose of network and coin, which means that they will use their hardware as servers for mining, and that will create more of them, which will generate the value as time goes by.
- It requires code to generate and encrypt both the blockchain network and software on which currency will operate. Most of them are based on open source codes, which are similar to peer-to-peer torrents, where each person acts as a server, which reduces the need for centralization.
- The confidence of people, retailers, and merchants to conduct business and value this particular type of currency, which ultimately builds trust among investors, consumers, and the general public.
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These three aspects are essential for generating value, but that is not everything that affects the cost. The main reason why businesses decide to create unique cryptocurrencies is that the crowd funds process known as ICO or initial coin offering.
It is a process in which startups raise money by creating their unique token that people can spend on future products and services, and in return, they need real cash.
Companies that participate in this particular process decide to exchange their tokens for established cryptocurrencies, while others choose to use them for trading exchanges afterward on the stock market.
Different Types of Cryptocurrencies
Today, we can find thousands of digital coins that feature more characteristics apart from the payment system. We will present to you the most popular ones:
- Bitcoin – This is the most popular and first digital currency that entered the market ten years ago and created a completely different approach to the economic perspective. It is considered as digital gold when compared with other types available on the market. Today, its value is slightly more than four thousand dollars for one Bitcoin, while we can find more than 17 million of them in circulation. According to makers, the overall supply will reach 21 million, and the scarce supply is the main reason for its value.
- Litecoin – If we consider Bitcoin as digital gold, Litecoin is digital silver. It was used as lighter currency for daily transactions, and even though it represents a replica of Bitcoin, it features its own life. Remember that it is faster to mine when compared with other digital currencies, but it has smaller value as well. It is a perfect solution because it has a flexible algorithm, which makes it a simpler solution for mining. One LTC is equal to $32, and there are 59 million of them in circulation. It is expected that it will reach up to 84 million when it comes to supply. Check out this guide: https://www.wikihow.com/Use-Cryptocurrency to learn more on how to use this particular form of cryptocurrency.
- XRP by Ripple – This is another cryptocurrency formed to improve cross-border payments and expedite transfers from all across the globe. The company is processing IOUs, which means that this is a transfer tool that reduces the possibility of frauds and spams. Even though it has no real value, it is 200 times faster than Bitcoin, which is the main reason for its popularity.