Cryptocurrencies are an Internet-based medium of exchange that uses cryptographic functions to execute financial transactions. Cryptocurrencies use the blockchain technology to be decentralised and to ensure transparent and immutable transactions.
The most important feature of a cryptocurrency is that it is not controlled by any central authority: the decentralised nature of the blockchain makes cryptocurrencies theoretically immune to control and interference by the government or a central bank.
Cryptocurrencies can be sent directly between two users through the use of private and public keys thanks to exchange platforms. These transfers have minimal transaction costs, allowing users to avoid the high fees required by traditional financial institutions.
What are their main features?
- Decentralised – No single entity has full control over a cryptocurrency; instead, control is decentralised and distributed over a large network of independent nodes around the world. Decentralised cryptocurrency control works through a core technology known as Distributed Ledger Technology or blockchain.
- Not issued nor guaranteed by governments – Cryptocurrencies are not issued by central banks or governments and (except in the case of stablecoins) are not linked to a legal tender or other underlying assets.
- Censorship Resistant – Due to their decentralised nature, cryptocurrencies are incredibly resistant to any government effort to censor or control them in any way.
- Secure – Cryptocurrencies that rely on a decentralised network, since they use encryption and all transactions are written on a distributed accounting register, have a system that offers no points of vulnerability or error. This makes them considerably more secure than single centralised systems such as those normally used by banks and governments.
- Irreversible – It is virtually impossible for anyone, except the owner of the corresponding private key, to carry out a cryptocurrency transaction from their wallet and once the transaction has been recorded on the blockchain, it stays there forever and it becomes impossible to change or cancel it.
- Anonymous / Pseudonym – Since cryptocurrencies use advanced encryption to function without relying on a central authority, network users do not have to identify themselves when they carry out cryptocurrency transactions. It is important to note that the latest generation of exchanges, in order to comply with the new regulations and laws in force, operate a verification of identity (KYC) of each user at the time of registration. In this way, even if users operate on the platform under a pseudonym, the community is certain that the people on the platform are real people.
Each cryptocurrency is unique in its own way
Ten years have passed since Bitcoin, the world’s first cryptocurrency, was created, and there are already more than 4,000 cryptocurrencies, all unique in their own way, following the path of their pioneering predecessor. Cryptocurrencies have evolved radically since their advent and today are much more than just an alternative to fiat currency.
Depending on their purpose, cryptocurrencies are generally placed in the following four categories:
- Coins: coins are the best-known type of cryptocurrency and are usually the first thing you think about when you hear the word “cryptocurrency”. Coins are built with the precise purpose of serving as a means of exchange and value reserves. The best-known cryptocurrency of this kind is Bitcoin.
- Utility tokens: Utility tokens or “App coins” are cryptocurrencies issued in order to finance the development of certain cryptocurrency projects and which can then be used to purchase goods or services offered by the issuer of the cryptocurrency. The most popular cryptocurrency of this type is Ethereum, a programmable cryptocurrency used to create decentralised applications. The Young is also a Utility Token, created for the Young ecosystem, starting with the Stepdrop App.
- Security tokens: security tokens are a type of cryptocurrency that derives its value from an underlying external asset. Security tokens are created as investments and, as such, are subject to strict security regulations in most jurisdictions around the world.
- Stablecoin: As the name suggests, a stablecoin is a type of cryptocurrency that has a stable value. Stablecoins are generally anchored (and redeemable) to other relatively stable assets such as fiat currencies or commodities such as gold. Currently, Tether is the largest and most recognisable stablecoin on the market.
What are the main ones?
The concept of cryptocurrency was born in 1998, but it was created only in 2009 with Bitcoin, when Satoshi Nakamoto published the protocol and the first version.
Today there are about a thousand cryptocurrencies, each with its own function and its own project. To this day, the currencies that stand out in the market after Bitcoin are Ether and XRP, respectively belonging to the ecosystems Ethereum and Ripple, which have focused rather than on the cryptocurrency itself, especially on innovative IT and financial services, with a fair amount of success among large banks and companies in the sector.
How do you earn cryptocurrencies?
Cryptocurrencies can be obtained in various ways:
- By contributing to the system of mining or consent of a network, by providing your computer skills and the computing power of your hardware in exchange for a small percentage.
- by purchasing them
- by working and getting paid with cryptocurrencies
Cryptocurrency works exactly like traditional currencies, of course only in the places that accept this type of currency.