A Guide To How Cryptocurrencies Work 1

Having been mainstream for just over a decade, cryptocurrencies have been an interesting topic of conversation over the years, with its success rising and falling along the way. Whilst the digital currency originated from the dark web how cryptocurrencies work became a popular topic amongst investors as the world discovered a new form of currency that wasn’t connected to any central exchange. The potential of cryptocurrencies has been the main factor to entice savvy investors, with those that have made well calculated decisions seeing as much as a lifetime’s worth of gains in little more than 11 months, in addition to being decentralised from any form of government. However, as an extremely volatile form of investment, cryptocurrencies certainly aren’t for the novice investor or the fainthearted. 

Thinking of investing? Keep reading to find out more about the cryptocurrency market and whether it’s still worth investing… 

What are Cryptocurrencies?

Cryptocurrencies are a form of digital money that exist outside the central exchange system and are based on blockchain technology. Blockchain works by collecting transactions and data, which is then turned into blocks in a digital public ledger. These blockchains use cryptographic protocols which are complex code systems built on mathematical and engineering principals, making them easy to transfer on a global scale, and difficult to track, duplicate or counterfeit. 

The types of Cryptocurrency available

There are over 1,300 cryptocurrencies currently circulating, however Bitcoin still dominates the market, accounting for 54% of the $589 billion market cap of all cryptocurrencies. Bitcoin operates on a peer-to-peer network in which each transaction happens directly between users, without the inclusion of any government. 

The other main cryptocurrencies dominating the market are altcoins and tokens/DApps. Altcoins are an alternative form of cryptocurrency that differentiate themselves to Bitcoin by using ‘stakers’ rather than ‘miners’. This means that fewer parties are involved in validating the transaction.

The third most popular type of cryptocurrency is the Token. Tokens are different in the way that they do not use blockchain technology but are used on DApps. They can either be used to purchase things within the app or used to get certain advantages such as discounted fees.

Who accepts Cryptocurrencies and when is it used?

Cryptocurrencies are stored in a few different varieties of digital form and can easily be spent by linking them to a debit cards. Such cards include Xapo, Uquid, Coinizy and many more. Whilst this is most likely the easiest way to spend your cryptocurrency, many retailers have been jumping on board, allowing you to directly use your cryptocurrency as a form of payment. Such retailers include Expedia, Virgin Galactic, Wikimedia and eGifter to name a few. 

The future of digital currency 

Whilst cryptocurrencies such as Bitcoin initially took off with great speed, they can be extremely volatile and what seems like a huge gain can dramatically change within a matter of days or even hours in some cases. The market has also been held back by a general lack of acceptance as strict financial regulation across the globe has been a main blocker for the expansion of many cryptocurrencies. 

However, despite its seemingly fragile state, as blockchain technology continues to develop, cryptocurrencies are becoming more and more widely used by the like of start-ups and other markets, rather than being limited to investors. It’s not for the fainthearted, but if you’re well informed and open to the possibility of significant gains as well as losses, give it a go!