What is cryptocurrency and how it works? Cryptocurrency is a form of digital currency that you can earn, buy, sell and accept as a form of payment. Bitcoin is the most famous type of cryptocurrency, but there are many to choose from.
There are 4 keys points to understand about cryptocurrencies: it’s decentralized; it has a limited supply; the coins aren’t printed like regular money; and transactions are anonymous. I’ll go into more detail on each point below!
First off, consider this – If you send someone some traditional government backed currency (pounds or dollars) then there is always an intermediary involved in processing that transaction which might charge fees for their services. But with cryptocurrencies all transactions happen between users directly via the blockchain.
Cryptocurrency is a digital currency that works without the need of any central authority. It uses cryptography to secure transactions and to control the creation of new coins.
It’s anonymous and decentralized, meaning transactions don’t have to be linked to real names or addresses, and it doesn’t rely on a bank because everything is done online.
Ripple, a company based in San Francisco, created the Ripple cryptocurrency, which has a faster transaction time than Bitcoin.
By June 2013, Ripple was the second largest cryptocurrency by market cap. The company created 100 billion XRP tokens at the start of their network. No new XRP tokens can be created in the future. A group called Ripple Labs owns 61% of those tokens and they sell them to fund operations, with 35% held by them and another 10% owned by founders and early backers.
Bitcoin is based on blockchain technology where every transaction is recorded on a public ledger. This means transactions are transparent and verifiable.
In theory, this allows Bitcoiners to know who sends and receives coins.
The other type of cryptocurrency is a digital asset that relies on a decentralized network with no central authority to verify the transactions.
The names of these new digital assets can be made up and they are generally traded without the intervention of banks, clearing houses or governments. The value of the digital currency is derived from how difficult it is to find a sufficient amount of it and how much consumers are willing to buy it for.
A cryptocurrency’s value increases in relation to demand for it. Therefore, every time fewer Bitcoins are being used for transactions, their value increases because demand for them will increase as a result.