What is Cryptocurrency?

May 5, 2021
Daniel Julius

You have likely heard a lot recently about a new, exciting, and highly ambiguous form of currency. This currency does not come in the form of cash, notes, or prepaid cards; rather it exists entirely online. For most, cryptocurrency is a daunting and complex idea that cannot be easily understood. This article will break down the basics of cryptocurrency to aid in your understanding of this new form of currency.

Essentially, cryptocurrency is a form of payment that can be used online in exchange for goods, services, or anything else that can be bought and sold. You can think of cryptocurrency like cash since it can be exchanged for goods and services, just like paper money. While the economics of cryptocurrency are vastly different (this topic will be discussed later in this article), at its core, cryptocurrency is simply virtual cash.

There are several reasons why cryptocurrency has grown in popularity. Many people believe that cryptocurrencies are the currency of the future, and they are excited to be a part of that trend. These people buy cryptocurrencies because they want to be early adopters of this new trend. Others buy cryptocurrency (and therefore raise the price of said currencies due to an increase in demand) because they hear of people making large profits when they buy cryptocurrencies low and sell them after they increase in price, sometimes turning people into millionaires relatively quickly. For these people, they are trying to make quick money hoping that the price of cryptocurrencies will continue to increase. Another reason that cryptocurrency is so popular is because many people like the technology that crypto uses. With financial technology becoming increasingly important, many people can simply appreciate the fascinating technology, such as blockchain – which is discussed later in this article – that cryptocurrencies utilize.

In addition to all the reasons stated above, there is also a natural demand for cryptocurrency from people who need to use cryptocurrency for certain transactions. Some transactions, mainly clandestine transactions, rely on cryptocurrency to function due the anonymity that cryptocurrency provides. These people provide a strong economic support for the price of cryptocurrency, and should be differentiated from hobbyists and enthusiasts. This is because hobbyists and enthusiasts will sell cryptocurrency if the price drops, but people who need to use cryptocurrency are more likely to keep their currency and therefore provide price support.

Cryptocurrency uses a technology called blockchain. This technology allows records and transactions to be spread across multiple computers, instead of relying on a single computer to record the transactions relating to cryptocurrency purchases and sales. The reason blockchain is used is to increase security, and in a sense, to spread one’s eggs over multiple baskets. In summary, blockchain is a technology used to increase security.

At this point, you may be wondering whether you should make an investment in cryptocurrency. However, if there were an easy answer to that question, then cryptocurrency would not generate the attention that it garners. If you would like to engage with a new and possibly profitable trend, you can invest a small amount in the currency and see for yourself where it goes!

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