All about Crypto Currencies, and why they are gaining immense popularity.
The word Crypto means digital, and the word currency means a medium of exchange of value. Crypto Currencies are a digital form of currency. These currencies are decentralized, which means they do not have a regulatory body to monitor them. Until recently, cryptocurrencies were only used by online participants who wanted to keep their identity unknown. The recognition and use became universal as and when people started understanding the true potential of digital currencies. To understand cryptocurrencies it is essential to understand how they operate.
Cryptocurrencies operate on the principle of blockchain. A blockchain can be defined as a ledger that stores information about various transactions. These ledgers are available to the public, and anyone can view or verify them. Each block of a blockchain has various elements, they are the cryptographic hash of the preceding block, the timestamp of the block, and the transaction information regarding the block.
The legitimacy of a cryptographic transaction is verified by “miners”, who use these blocks and their contents to verify the transaction. The procedure by which they validate the whole blockchain is called proof-of-work. The procedure is that they verify every block of the whole chain using the information of the preceding block to ensure there is no double-spending using the same coin and the same transaction. In terms of physical currencies, it’s easier, as a particular banknote can’t be used more than once. But, when it comes to digital currency it is easier for the participants to use the same transaction number twice and falsify the records. Miners are given a reward for their work in the form of the respective currency whose blockchain they validate. For example, Bitcoin miners are given bitcoins to validate bitcoin blockchains.
Cryptocurrencies can be used for multiple purposes. Late of cryptocurrencies have been used for the following,
1) Mode of payment.
With how much the cryptocurrency market has grown, and various countries legalizing the use of cryptocurrency as a legitimate mode of payment, it is perceived that cryptocurrencies are going to take over the traditional currency system. Several countries have legalized the use of bitcoin as a mode of payment for transactions, this includes Denmark, France, Germany, Iceland, Japan, Mexico, Spain, and United Kingdom. With the use of cryptocurrency growing like a wildfire, various countries might come up with their own regulated and stable cryptocurrency to be used as a mode of payment.
2) Investment.
Investment in any instrument or an asset can mean acquiring such an item with an intention to hold it for a longer period with an expectation that the asset might appreciate over the period it is held. Investments are made using the tools of quantitative analysis. Quantitative analysis involves performing thorough research about the instrument. Investment in cryptocurrencies is done with the aim that the coin might increase in value over some time. Quantitative analysis of cryptocurrencies might be looking into the essential aspects of it, which might include briefly going through the coin website, the creators of the coin, the market capital, the demand, and supply chain, the holding overview, the news, and social sections.
3) Trading.
Trading is the activity of buying instruments and holding them for a short period to sell them off for a profit in the current term. When it comes to cryptocurrencies, trading can mean the buying of a coin and selling it off at a higher price. Trading periods might vary from transacting in a few seconds to transactions where coins are held for a few weeks. If the instrument is bought and sold on the same day then it is termed intraday trading, if the instrument is bought and then sold within a period of a few days to a few weeks it is known as swing trading.
4) NFT.
Non-fungible token which abbreviates to NFT is a unique piece of art. These are digital art that can be owned by the public at large or by a single person. NFTs are digital forms of art, it can be a picture, a video, a Gif, a tweet, music, etc. NFTs are usually a part of the Ethereum(ETH) blockchain. They are different from the ETH coin, these NFTs are powered by a smart contract on the blockchain of the same. These blockchains can store a value which made them an Ethereum based asset. A lot of other cryptocurrencies can do the very same, and some have become a platform for NFTs.
In conclusion, it can be said that irrespective of the current hype in the cryptic currency market, cryptos have a huge upside potential because the future is taking a turn towards the digital and technological era.