Cryptocurrency is ready to replace money as a store of value and a means of transaction. Unlike cash, it’s not controlled by the federal government; it’s more secure and a better store of wealth. Before you consider cryptocurrency, you may want to determine its uses. What can cryptocurrency be used for?
Cryptocurrencies can be used in the following ways:
- Low-cost transfers
- Make private transactions
- Alternative store of wealth
The adaptation of cryptocurrency is growing. According to 2022 stats, over 300 million people use crypto worldwide. Of course, the figure will increase in the coming years. If you want to join the bandwagon, you must understand what cryptocurrency is, how it works, and its uses.
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How Can Cryptocurrency Be Used?
Before we understand the uses of cryptocurrency, let’s first understand what cryptocurrency is:
Cryptocurrency is a digital payment system that doesn’t depend on banks to confirm transactions. It’s simply a peer-to-peer system that can enable individuals from anywhere to send and receive payments. Instead of carrying cash around, crypto payments exist as digital entries to an online database describing certain transactions. When you transfer crypto funds, the transactions are recorded in a public ledger. Unlike cash, crypto cannot be stored in your wallets. Instead, it’s stored in a digital wallet.
Cryptocurrency got its name because it uses encryption to verify transactions. This means advanced coding is involved in safekeeping and transmitting crypto data between wallets and to public ledgers. The goal of encryption is to offer security and safety.
The first cryptocurrency was Bitcoin, which was founded in 2009 and is the best-known crypto today. Much of the interest in cryptocurrencies is to trade for profit, with speculators at times forcing the prices upwards.
How Do Cryptocurrencies Work?
Most cryptocurrencies operate without the support of a central bank or government. Instead of depending on government guarantees, the decentralized tech called blockchain underpins the operation of cryptocurrencies.
Cryptos don’t exist as a stack of notes or coins. Instead, they live only on the internet, hence why they are called digital currencies. You can also consider them virtual tokens, the value of which is chosen by market forces made by those seeking to buy or sell them.
Cryptocurrency is made through a process known as mining, which means employing computer processing power to solve complicated mathematical problems to earn coins. Users can also buy the currencies from brokers, which they can then store and spend using encrypted wallets.
Blockchains normally function through a proof-of-work (PoW) or proof-of-stake (PoS) consensus algorithm. PoW operates based on miners who always choose specific computing machines for the process.
PoS, on the other hand, runs on staking. In the staking system, rewards are shared to help run the network by holding assets in some chosen wallets. A number of PoS assets also allow for masternodes, a more complex staking process that often requires a minimum number of coins.
Uses of Crypto:
Crypto can be used in many ways, including:
Low-cost transfers: Transfer fees for crypto transactions are low compared to the fees of typical bank transfers
Make private transactions: Private transactions are easy, cheap, and fast when using crypto. All you need is the wallet address of the recipient.
Alternative store of wealth: Crypto isn’t only a hedge against inflation. It can also be used to store wealth. The best part? It yields good ROI.
Travel: Some travel agencies accept Bitcoin as a mode of payment.
Education: Some schools also accept cryptocurrencies as a form of payment. According to Futurism.com, universities in Switzerland, Germany, Cyprus and the U.S. have started accepting Bitcoin as payment.
How to Store Cryptocurrency?
Once you have bought a cryptocurrency, you need to store it safely to protect it from hacks or theft. Usually, cryptocurrency is stored in crypto wallets, which are physical devices or online software used to store the private keys to your cryptos securely. Some exchanges provide wallet services, making it easy for you to store directly via the platform. But, not all exchanges or brokers automatically provide wallet services for you.
There are different wallet providers to select from. The term “hot wallet” and “cold wallet” are used:
Hot wallet storage: “Hot wallets” are crypto storage that uses online software to protect the private keys to your assets.
Cold wallet storage: Unlike hot wallets, cold wallets (also regarded as hardware wallets) depend on offline electronic devices to securely store your private keys
Normally, cold wallets often charge fees, while hot wallets are free.
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Is Cryptocurrency Safe?
Before investing or trading crypto, you might want to do your due diligence by determining how safe cryptocurrency is.
First off, you need to understand that cryptocurrencies are built using blockchain tech. This tech describes how transactions are recorded into “blocks” and time stamped. It’s a fairly complicated, technical process, but the outcome is a digital ledger of cryptocurrency transactions that’s difficult for anyone to tamper with.
Also, transactions require a two-factor authentication process. For example, you might be asked to enter a username and password to begin a transaction. Then, you might have to input an authentication code sent through text to your personal cell phone.
While securities are in place, that doesn’t mean cryptocurrencies cannot be compromised. Many big-money hacks have cost cryptocurrency start-ups millions of dollars. For example, hackers hit Coincheck to the tune of $534 million and BitGrail for $195 million, making them two of the biggest cryptocurrency hacks of 2018.
Unlike government-issued money, the value of virtual currencies is propelled entirely by supply and demand. This can create huge swings that produce significant gains for investors or big losses. And cryptocurrency investments are subject to far less regulatory protection than typical financial products such as stocks, bonds, and mutual funds.