Cryptocurrencies – What are they, how do they work and what are virtual currencies for?

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Learning ALL about CRYPTOCURRENCIES

Is it possible that in the future everyone will use cryptocurrencies? Honestly, no one knows. But, believe it or not, one thing is for sure. Cryptocurrencies have revolutionized the current financial system.

Banks, different governments and large multinationals are investing in research and development of blockchain. If they are interested in this technology, I assure you that you should also care about learning about cryptocurrencies.

Cryptocurrencies, what is a virtual currency?

For this purpose, criptomoneda.ninja gathers the best information about cryptocurrencies in one website. Our intention is to create the best manual on virtual currencies. Are you ready to receive the best training on cryptocurrencies for dummies?

In the first paragraphs you will find an explanation of cryptocurrencies for beginners, with an introduction to the basic concepts of digital currencies. Later on, we will teach you more advanced concepts, so that you can become a real expert. If you want to know how to get started with cryptocurrencies, you have come to the right place.

If you want to know much more information about cryptocurrencies, visit our Bitcoin Guide.

We try to explain cryptocurrencies for dummies, so that everyone will be able to understand them.

What is a cryptocurrency Are they a fraud or is it the money of the future?

Cryptocurrencies are now a global phenomenon known to most people. However, talking about them still sounds a bit geeky and most people still do not fully understand what a cryptocurrency is. On the other hand, banks, governments and many large companies are aware of their importance. If they are interested, you should learn about cryptocurrencies too.

Today it is hard to find a major bank, a large accounting firm, a prominent software company or a government, that has not researched some cryptocurrency, published a paper about them or developed some blockchain project.

But beyond the media noise, the vast majority of people – even these bankers, consultants, scientists and developers – have very limited knowledge about cryptocurrencies. They often don’t even understand the basics of cryptocurrencies.

What are cryptocurrencies?

Cryptocurrencies are digital cash. In cash? Yes. They are not “stuffed in a card” or deposited in a bank account. Electronic currencies are held in cryptocurrency wallets, which, like cryptocurrencies, are unseen: they are digital.

In a more advanced explanation, cryptocurrencies are accounting entries in a database or, rather, a digital ledger. But for security, all transactions made in this database are encrypted. In other words, they are cryptocurrencies. This is the meaning of crypto within the term cryptocurrency.

However, this is an easy explanation about cryptocurrencies. The meaning of cryptocurrencies involves a new technology that has revolutionized the industry, developing applications beyond financial ones.

To understand cryptocurrencies, a more detailed explanation is necessary. So let’s start with cryptocurrencies from scratch.

  • What are cryptocurrencies and how do they work? What does cryptocurrency mean?
  • What is the history of cryptocurrencies?
  • How did cryptocurrencies originate?
  • What is the purpose of mining cryptocurrencies?
  • How are cryptocurrencies created?
  • Are cryptocurrencies legal?
  • How do they influence the digital economy?

What was the origin of cryptocurrencies?

If we want to explain the origin of virtual currencies, we have to go to the first of them all: The bitcoin. Cryptocurrencies and bitcoin are two terms that always go hand in hand.

Few people know it, but the creation of a cryptocurrency was not the initial intention of its inventor. Let’s say they are a by-product. Satoshi Nakamoto, the inventor of the most important cryptocurrency, bitcoin, never intended to invent a currency.

Satoshi’s goal was to develop “a digital peer-to-peer payment system,” as he stated in late 2008.

A peer-to-peer network, peer-to-peer network, peer-to-peer network or peer-to-peer (P2P) network is a network of computers that share all information with each other. There is no central server, but rather nodes that behave as equals among themselves.

Actually what he did was to announce the first version of Bitcoin: A new electronic cash payment system that uses a peer-to-peer network to avoid double spending. It was the birth of bitcoin and virtual cryptocurrencies. A completely decentralized network, with no central authority to control it. There was not even a central server.

If they are decentralized, who backs the cryptocurrencies? Who controls them?The backing of cryptocurrencies comes from the trust of their users. Just like a dollar or a euro, it is the people who give value to cryptocurrencies. But unlike cryptocurrencies, there is no central body to control them.

This gives cryptocurrencies a great advantage. Repeatedly in history, governments have devalued their common currency for their own purposes, to the serious detriment of their population. However, the value of cryptocurrencies can never be manipulated, their price is self-regulated by their own market.

Satoshi was not the only one. In the 1990s, there were many attempts to create digital money. All these attempts at digital currencies were controlled by a central entity. This authority ruled over the value of the currency and decided when and how much money was issued. Obviously, they all failed.

The most important part of Satoshi’s invention was that he found a way to build a decentralized digital payment system. The success of the project was not the creation of bitcoin, but the invention of the decentralized system. Without intermediaries.

The history of cryptocurrencies and bitcoin are totally linked.

This decision became the origin of cryptocurrencies. Decentralization was the missing piece and the trigger that has revolutionized the current financial system. The reason is a bit technical and complex, but if you manage to understand it, you will know more about digital currencies than most people. So, let’s try to explain it as simply as possible.

Satoshi Nakamoto, by inventing the first of them, is credited with being the creator of cryptocurrencies.

Learn more about the origin of virtual currencies in the section on the history of cryptocurrencies.

How cryptocurrencies work

For a virtual payment system to function, it is necessary to keep track of all accounts, balances and transactions that take place in it. An important problem that a payment network must face is to avoid the so-called double spending: to prevent someone from spending the same amount twice. Generally, in the systems of today’s financial institutions, this is done by a central server that keeps track of transactions.

In a decentralized network, there is no such server. So it is necessary the coordination of each of the entities in the network to do this job. All nodes in the network need to have a list of all transactions to check if future transactions are valid or are an attempt to duplicate spending.

But how can these entities maintain a consensus about these records?

If the peers in the network disagree on just one minor balance, the whole thing breaks down. They need absolute consensus. Usually, it takes, again, a central authority to declare the correct status of the balances. But how can consensus be achieved without a central authority?

No one knew until Satoshi came along. In fact, no one believed it was possible.

His greatest innovation was to achieve consensus without a central authority. Cryptocurrencies are a part of this solution. As we said, a secondary product for the proper functioning of a decentralized payment network.

What cryptocurrencies are for

If we remove all the noise around cryptocurrencies and reduce it to a definition, the meaning of cryptocurrencies can be as follows:

Definition of cryptocurrencies

According to the concept of cryptocurrencies, they are just a series of limited entries in a database that no one can change without meeting specific conditions.

This may seem simplistic, but it is exactly how a virtual currency can be defined.

To make an analogy with money in a bank account… Aren’t they just entries in a database that are modified according to certain conditions? Money is simply a verified entry in some kind of database where accounts, balances and transactions are recorded. Most of the money moving today is electronic money.

In the traditional financial system there are two types of money: legal and bank money. Legal money is legal tender coins and banknotes. Bank money is the virtual money that exists in deposits and bank accounts. The sum of both is the Money Supply. Or what is the same, the amount of money circulating in a given economy.

There is no difference between cryptocurrencies and bank money. They are just a new type of money: digital. They are exactly the same: records in a database. Why so much fear around digital currencies?

Digital economy

With the internet, our understanding of the economy has changed more and more. So much so that today we already talk about the Digital Economy, also known as “Internet Economy”, “New Economy” or “Web Economy”.

The Internet has revolutionized the world of insurance, credit, gambling, commerce and many other sectors. The emergence of cryptocurrencies is a further step in this 4.0 revolution. It means a total break with the traditional economy, totally detaching them, so that experts already speak of this new stage as the era of the crypto-economy.

Investing in cryptocurrencies

Since the origin of cryptocurrencies, their popularity has only grown. This has been reflected in the price of cryptocurrencies, which has only increased since then.

Therefore, another use of cryptocurrencies is as an investment instrument. There are many cryptocurrencies that can be used as an example: from Bitcoin to Ethereum, through IOTA, EOS, NEO or Stellar.

However, when investing in cryptocurrencies, it is VERY IMPORTANT to keep the following tips in mind:

  • Invest in cryptocurrencies money that you do not need and that will not be a problem if you lose. The cryptocurrency market is very volatile. You can win a lot, but you can also lose everything.
  • Never invest in cryptocurrencies on anyone’s recommendation. In the world of cryptocurrencies there are many people with their own interests and their recommendations may be malicious.
    To avoid possible scams it is essential to acquire virtual currencies in verified and highly extended platforms.

If you are convinced about investing in cryptocurrencies, we recommend reading the following sections:

  • Risks of cryptocurrencies, where you will learn about the dangers of investing in cryptocurrencies.
  • Cryptocurrency scams, where we update you on the latest frauds with virtual currencies.
  • Cryptocurrency Exchanges, where we show you the safest platforms to get the coveted cryptocurrencies.
  • How to buy cryptocurrencies, where we teach you everything you need to know to acquire digital coins.

Cryptocurrency mining

A cryptocurrency such as Bitcoin consists of a network of peers or nodes. That is, a distributed network of computers. Each peer has a record of the complete history of all transactions and therefore of the balance and of each account.

A transaction is a file that says, “John gives X Bitcoin to Anthony” and is signed by John’s private key. Once signed, a transaction is issued on the network. That is, one of the peers sends it to each of the other peers. This is basic P2P technology. Nothing special.

Transaction confirmation is a key concept in virtual currencies. You could say that cryptocurrencies are all about confirmation.

When a transaction is not confirmed, it is pending and can be forged. When a transaction is confirmed, it is kind of burned in. It is no longer falsifiable, it cannot be reversed, it is part of an immutable record of historical transactions: the so-called blocks or blockchain.

The blockchain is a fundamental part of cryptocurrency security.

But then, how are blockchain transactions confirmed?

Only miners can confirm transactions. This is their job in a virtual cryptocurrency network. They take transactions, stamp them as legitimate and propagate them on the network. After a transaction is confirmed by a miner, each node has to add it to its database. It is already part of the blockchain.

What is mining cryptocurrencies?

Mining cryptocurrencies is to confirm transactions on the cryptocurrency blockchain.

For this work, miners are rewarded with a token of a cryptocurrency, for example with bitcoins. The miner’s activity is one of the most relevant in the system.

That is, cryptocurrencies were created solely as a reward to miners. That is their only function. However, they are fundamental, since cryptocurrency mining is what makes the decentralization of the system possible.

What do cryptocurrency miners do?

Really everyone can be a miner. Since a decentralized network has no authority to delegate the task of confirmation, a cryptocurrency needs some sort of mechanism to prevent a governing party from abusing it. Imagine someone creating thousands of fake users and propagating counterfeit transactions. The system would immediately break down.

Therefore, Satoshi established that miners need to give up some work of their computers to perform block confirmation. In fact, they have to find a hash – a product of a cryptographic function – that connects the new block with its predecessor. This is called the proof of work (Proof of Work).

For example, bitcoin uses the SHA-256 hash algorithm.

It is not necessary to understand the details about SHA-256. It is only important to know that they are very difficult cryptological puzzles that miners compete to solve. After finding a solution, a miner can build a transaction and add it to a block on the blockchain. As an incentive for this work, the miner is entitled to a specific number of bitcoins. This is the only way to create valid bitcoins.

For this reason, miners are fundamental to the functioning of cryptocurrencies.

Learn more about the creation of virtual currencies and the Proof of Work system in the section on cryptocurrency mining.

Revolutionary features of cryptocurrencies

As we mentioned above, virtual currencies and bank accounts are practically the same thing. So why are cryptocurrencies a revolution?

The main difference, of course, is decentralization.

Bank accounts are databases controlled by people, without you really knowing what they do with them. Cryptocurrency transactions, on the other hand, are secured by a series of cryptographic processes. They are not secured by people or by social trust, but by mathematics. An asteroid is more likely to fall on your house than to compromise the security of cryptocurrencies.

To properly describe the properties of cryptocurrencies, let’s separate their characteristics into transactional and monetary. Note that all digital currencies do not have the same properties, although they do have some common ones.

Transactional properties of cryptocurrencies

Irreversible. After confirmation, a transaction cannot be reversed. By no one. And nobody means nobody. Not you, not your bank, not the President of the United States, not Satoshi, not your miner. Nobody. If you send money, you send money. No one can help you if you send your funds to a scammer or if a hacker steals them from you. There is no safety net.

The network uses pseudonyms. Neither transactions nor cryptocurrency accounts are connected to real-world identities. Each person is identified by so-called virtual addresses or virtual wallets, which are random alphanumeric strings of about 30 characters.

A priori, it seems that cryptocurrencies are anonymous. However, most exchanges today require identification in order to acquire them. In other words, they relate addresses to physical persons. In addition, addresses can also be identified by the IP of the device where they were used. Therefore, it is not so easy to use virtual currencies for money laundering.

Fast and global. Transactions propagate almost instantly in the network and are confirmed within a couple of minutes. Since they happen on a global network of interconnected computers, their physical location is indifferent. It doesn’t matter if I send cryptocurrencies to my neighbor or to someone on the other side of the world.

If we make a comparison with traditional banking, the differences are obvious. Domestic bank transfers usually take one or two days to complete. If we talk about international transfers, things get more complicated. They usually take several days and have abusive commissions.

Security. Cryptocurrencies are stored in a cryptographic system of public keys. Only the owner of the private key can send cryptocurrencies. Strong cryptography makes it impossible to break this scheme. Cryptocurrencies are secure.

You don’t need permission. You don’t have to ask anyone to use cryptocurrencies. It’s just software that everyone can download for free. After installing it, you can receive and send bitcoins or other cryptocurrency. No one can prevent you. There is no gatekeeper.

Transparent. Since you can download the software, anyone can see its code. Unlike the banking system, where you don’t know what they do with your money, the code of cryptocurrencies is public and anyone can see it. Their rules are written down.

Monetary properties of cryptocurrencies

Controlled issuance. Most cryptocurrencies limit their supply. In bitcoin, the supply decreases over time. The maximum number of bitcoin units issued will be reached around 2140. All cryptocurrencies control their supply by programming written in the code. The rules of the game are written and cannot be changed. This means that today you can calculate the monetary supply of a cryptocurrency at any time in the future. There are no surprises. Cryptocurrencies are limited.

For example, through the following page, you can find out how many bitcoins there are today.

Differences between cryptocurrencies and banks: Virtual currencies do not support debt. The money in your bank account is created through debt. Central banks issue money through debt. It is an IOU system. Cryptocurrencies do not represent debt. They only represent themselves. They are money as pure as gold coins.

To understand the revolutionary impact of digital currencies, it is necessary to consider the two types of characteristics. Bitcoin as an irreversible, pseudonymous means of payment is an attack on the control of banks and governments over the monetary transactions of their citizens. You can’t stop someone from using bitcoin. You cannot prohibit someone from accepting a payment. You cannot undo a transaction.

Since, in addition, cryptocurrencies have a limited source and are not controlled by a Government, bank or any kind of central institution, they are an attack on the scope of monetary policy. They steal the control that central banks have over inflation or deflation, which allows them to manipulate the money supply.

Cryptocurrencies as a revolution in today’s financial system

Virtual currencies have become a success, mainly due to their revolutionary properties.

Satoshi Nakamoto, the inventor of cryptocurrencies, probably never imagined what he had actually created. While every other attempt to create a digital payment system failed to attract a critical mass of users, there was something about Bitcoin that provoked excitement and fascination.

Cryptocurrencies are a digital asset. Money that is sound and safe from political influence. Money that promises to preserve and increase in value over time. Virtual currencies are also a fast, convenient and global means of payment.

However, although cryptocurrencies were created as a payment system, their use as a means of speculation dwarfs their usefulness as a means of payment. Digital money gave rise to an incredibly dynamic and fast-growing market for investors and speculators. Exchanges such as HitBTC, Coinbase or Binance allow trading of hundreds of cryptocurrencies. Their daily trading volume exceeds that of major European exchanges.

What are cryptocurrency Exchanges?

Cryptocurrencies are not listed on the stock exchange, they have their own market. They are acquired through exchanges or cryptocurrency exchange houses. These systems are platforms that allow the exchange between FIAT currencies and cryptocurrencies and between different cryptocurrencies.

If you want to know more about them and learn about the most secure platforms, you can read our tutorial on the best cryptocurrency Exchanges.

Similarly, Initial Coin Offerings (or ICOs) gave life to incredibly successful crowdfunding projects, where often one idea was enough to raise millions of dollars. For example, the “DAO” project raised over $150 million.

In this rich ecosystem of coins and tokens, there is extreme volatility. It is common for a coin to increase in value by 10% in a single day, only to lose the same the next day. There are even cases of 100% daily revaluations. If you are lucky, the value of your currency can grow by as much as 1000% in a week or two.

If you want to better understand why they are volatile, we recommend reading about the cryptocurrency bubble.

Main cryptocurrencies

Although Bitcoin remains by far the most famous cryptocurrency, different types of official cryptocurrencies are emerging and having a strong impact on the industry. The following are examples of the most popular cryptocurrencies today. Due to their high diffusion, they are cryptocurrencies with future and surely, the best cryptocurrencies to start with.

Bitcoin

It is the first and most famous. The first cryptocurrency worldwide. Bitcoin serves as a standard in the entire virtual cryptocurrency industry. It is used as a global means of payment. In 2017, its value reached over €16,000 ($19,000 at the exchange rate), and its transaction volume reached almost 500,000 transactions per day.

The Bitcoin world is here to stay. It is the world’s largest cryptocurrency.

Read more about Bitcoin.

Bitcoins are divided into submultiples, known as satoshis. There are different sites where it is possible to get some satoshis for free. The most widespread are known as bitcoin faucet, where you can get fractions of this cryptocurrency quickly.

If you are interested in knowing more about satoshis and which are the safest websites where you can get bitcoin for free, we recommend the following readings:

What are satoshis.
How to earn free bitcoin.
Faucet bitcoin, where we show you the best faucets that exist.
Freebitcoin, surely the most used faucet in the world.

Ethereum

The idea of the young cryptographic genius Vitalik Buterin remained for a long time in second place within the virtual currencies, although currently it is Ripple who occupies this place. The Ethereum blockchain is not only valid as a digital payment system; it also allows you to execute so-called smart contracts.

This flexibility makes Ethereum the perfect instrument for developing blockchain applications, which has made it one of the most interesting cryptocurrencies.

To give you an idea of the flexibility that digital contracts offer Ethereum, take CryptoKitties as an example.

This is a fun virtual pet game, like the famous Pou but with virtual kittens, which is developed entirely on the Ethereum Blockchain.

In the following article, you can learn about many more blockchain use cases.

But this flexibility comes at a cost.

After the hacking of the DAO project (a smart contract based on Ethereum), the developers decided to make a parallel fork of the project. Thus, Ethereum Classic was born.

In addition to this, there are several Ethereum clones. Moreover, other famous tokens such as DigixDAO or Augur have been developed on the Ethereum protocol. This makes Ethereum more a family of cryptocurrencies than a single currency.

In the following link, you can read more about Ethereum.

Ripple

Perhaps the least popular (or even most hated) project in the cryptocurrency community is Ripple. However, it is the third largest coin by market capitalization.

The Ripple protocol has a native coin, known as XRP. However, XRP represents IOUs or, in English, promissory notes. In other words, it is a debt-based cryptocurrency. XRP, the currency, does not serve as a means to store and exchange value, but rather as a token to protect the network against spam.

This cryptocurrency was created by the company Ripple Labs. This company manages the Ripple network, and tokens are distributed by them at will. As you can see, this coin contradicts all the properties that make cryptocurrencies a revolutionary project.

However, major banks seem to like Ripple and are adopting the system at an increasing rate.

Litecoin

Another well-known cryptocurrency is Litecoin. It was one of the first cryptocurrencies after Bitcoin.

This type of cryptocurrency was labeled as the silver of bitcoin, which is considered the digital gold. It is a faster protocol than bitcoin, with a larger number of tokens and a new mining algorithm. Litecoin was a true innovation, perfectly suited to be bitcoin’s little brother.

Litecoin is one of the bitcoin types.

From Litecoin’s code, other digital currencies emerged, making them faster currencies than bitcoin. Some examples of faster cryptocurrencies are Dogecoin or Feathercoin.

Litecoin could not find a real use case beyond being “digital money” (for that there was already Bitcoin). As a result, it lost its second place to bitcoin. However, it is currently still being developed. It is actively traded and serves as a “safe haven value” when bitcoin fails.

Monero, the anonymous cryptocurrency

Monero (XMR) is a type of cryptocurrency that was invented to add the privacy features that Bitcoin does not have. Although Bitcoin and other virtual currencies use pseudonyms, every transaction is documented on the blockchain and transactions can be tracked. With the introduction of a concept called ring-signatures, the Monero algorithm was able to eliminate that trace on the blockchain.

This was developed through an algorithm known as CryptoNight.

The first implementation of CryptoNight was in Bytecoin. However, it was heavily premined which led to backlash from the Community. Monero was the first non-premined clone of Bytecoin and created a lot of buzz. There are many projects based on the CryptoNight algorithm, but none have reached the same popularity as Monero.

Some black markets and the deep web have found an advantage in the anonymity of Monero. For this reason, in many of these illegal markets, Monero has been adopted as a common currency.

In addition to these, hundreds of cryptocurrency-based projects have been born. Many have been just a quick way to raise money. Many others, however, are a true technological innovation. Other cryptocurrencies with a future are IOTA (one of the most interesting cryptocurrencies of 2017), EOS, TRON or Cardano.

What cryptocurrencies exist

The popularity of bitcoin has sparked a great interest in the world of virtual cryptocurrencies. There are more and more cryptocurrencies in the world, although few have achieved notable success. There are currently thousands of types of virtual currencies and their number is growing all the time.
Why are there so many cryptocurrencies?

The reason why there are so many cryptocurrencies are ICOs. Through these instruments, any company can acquire financing by issuing a virtual currency. However, there is a problem: They are not yet regulated.

If the stock market is supervised by government agencies (the CNMV in the case of the IBEX 35 in Spain), cryptocurrencies have no central control. Anyone can create a cryptocurrency. This is one of the ingredients of the cryptocurrency boom.
What are virtual currencies?

From criptomoneda.ninja we keep track of more than 3,000 cryptocurrencies. You can find out how many virtual currencies exist in the section “List of cryptocurrencies”.

Risks of cryptocurrencies

Cryptocurrencies are not without dangers. It is a new financial asset that has been accessed by many people without economic education. Therefore, it is common for fraudsters to take advantage of this ignorance.

Among the risks of cryptocurrencies we can highlight: market volatility and scams.

Cryptocurrencies are a highly volatile financial asset. Daily variations in value of more than 10% are common. In addition, there are more and more cryptocurrencies in the world and no one knows for sure the future they will have. Although many cryptocurrency experts are confident about the future of cryptocurrencies, no one can ensure their consolidation or the measures that governments will take against them.

Therefore, it is very important not to have a significant percentage of your investments in cryptocurrencies. To avoid the dangers of cryptocurrencies we constantly repeat the following (and we will not get tired of doing it):

Invest in cryptocurrencies money that you do not need and that will not be a problem if you lose.

Another risk of cryptocurrencies are scams. There are many of them: Promises of great investment returns, exchanges or exchange houses that take your money, fake ICOs…

That is why cryptocurrency education is very important. You must create your own criteria and investment strategy. You must read a lot.

In our section on cryptocurrency scams, we collect all the frauds we find on the internet. We try to update it frequently, so we recommend you to take a look before using any new platform.

ICOs are financial mechanisms through which companies obtain financing by putting a cryptocurrency into circulation.

Some of today’s most important cryptocurrencies, such as Ethereum, come from an ICO. However, the reality is that most of them do not come to fruition. Investing in these types of instruments is very risky. To avoid scams and learn more about them, we recommend the section “Cryptocurrency ICOs”.

The following recommendations should be added to the above:

  • Never invest in cryptocurrencies on anyone’s recommendation. In the world of cryptocurrencies there are many people with their own interests and their recommendations may be malicious.
  • To avoid possible scams it is essential to acquire virtual currencies on verified and highly extended platforms.

Advantages and disadvantages of cryptocurrencies

Cryptocurrencies are not perfect. Although they have many advantages, they are a developing technology, so they still have some disadvantages.

In conclusion, here are the main advantages and disadvantages of cryptocurrencies. However, if you want to go deeper into the subject, we have prepared a specific article with all this information. In it, we also present the benefits and disadvantages of the most popular cryptocurrencies. You can find it at the following link.

“Related article: Advantages and disadvantages of cryptocurrencies.

Main advantages of cryptocurrencies

  • They use a decentralized system, so your money will not be controlled by third parties.
  • They work in a global and fast system. This represents a clear advantage over traditional banking.
  • It is not anonymous, but uses pseudonyms: No one will be able to profit from your banking information.
  • It is secure. It cannot be falsified. Its protocol is designed to avoid double spending.
  • It is cheap. The costs of your transactions are considerably cheaper than those of traditional banking.
  • It is a totally transparent system. Its code is open and transactions are published.
  • It allows micropayments due to the high divisibility of digital currencies.
  • You can make instant transfers 24 hours a day, 365 days a year.
  • They do not take up space.
  • They have a controlled issuance. Their value cannot be manipulated by governments.
  • The future of cryptocurrencies goes far beyond financial systems. Multiple services are being developed thanks to the blockchain.

Main disadvantages of cryptocurrencies

  • Currently, the value of cryptocurrencies is very volatile. Their price can vary considerably in a matter of hours.
  • There are too many cryptocurrencies and the reality is that few will become really useful. No one knows which cryptocurrencies will be the most prosperous, or even if they are some of those already created. For these reasons, perhaps the safest thing to do would be to invest in popular cryptocurrencies.
  • They are not yet globally accepted and no one assures that they will be in the future.
  • Cryptocurrencies are not yet legalized. Some governments are currently developing regulations on them. Still, do not forget that, according to the legislation of most countries, it is mandatory to pay taxes on cryptocurrencies.
  • Cryptocurrency exchanges still have to invest heavily in security.
  • Cryptocurrency transactions are irreversible. If you make a mistake, you will have lost your cryptocurrencies.
  • Cryptocurrencies have attracted many people without financial knowledge, which has led to the emergence of numerous cryptocurrency scammers.
  • Many cryptocurrency projects have no real backing.
  • The creation of cryptocurrencies using the “Proof of Work” protocol consumes a lot of electrical power. Fortunately there is another protocol called “Proof of Stake” that does not require as much energy. Many of the famous cryptocurrencies, such as ethereum, are starting to introduce it in their code.

What will be the future of cryptocurrencies?

The cryptocurrency market is fast and wild. Almost every day new types of cryptocurrencies emerge and old ones that have not worked die. Early adopters of new cryptocurrencies get rich and many investors lose money.

Each cryptocurrency comes with a promise. Few survive the first few months. Most are manipulated by speculators and live as zombie currencies until the last holder loses hope of seeing a return on their investment.

The reality is that the markets are flawed. But this does not change the fact that cryptocurrencies are here to stay and change the financial system and revolutionize technology.

This is already happening. People all over the world are buying Bitcoin to protect themselves from the devaluation of their national currency. Especially in Asia, where there has been a very active cryptocurrency market. As well as other countries with war conflicts, such as Pakistan or with political problems, such as Venezuela or Argentina.

In addition, more and more companies are discovering new uses for blockchain and developing real applications based on smart contract technology.

The revolution is already happening. The Digital Economy is a fact. There are more and more types of virtual money. Institutional investors are starting to buy cryptocurrencies. Banks and governments realize that this invention has the potential to take control away from them. Cryptocurrencies change the world. One step at a time.

You can stand aside and watch… or you can become part of history.

Cryptocurrencies Summary: Conclusion

Too much information about cryptocurrencies all at once? Don’t worry, it is normal not to understand everything at once. As a summary of cryptocurrencies, we will review their main characteristics. The most important thing about the definition of cryptocurrencies is that:

  • Cryptocurrency transactions are irreversible.
  • Not all digital currencies are deflationary, but they do have controlled issuance.
  • They use pseudonyms. Although they are not totally anonymous.
  • Transactions are fast and global.
  • They are a totally secure system.
  • Cryptocurrency networks are transparent and public.
  • Cryptocurrencies do not bear debt.

Do you think cryptocurrencies are the money of the future?

We hope that after this online cryptocurrency course you have learned everything about cryptocurrencies. If you still have any doubts, you can ask any questions in the comments. Even if you want any other explanation about cryptocurrencies.

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