Cryptocurrencies changed the financial landscape in the last decade, growing from a small financial phenomenon to a widespread adoption. The 2017 crypto boom made many millionaires and increased the demand for cryptocurrencies as a financial asset.
However, the subsequent crash in 2018 saw a different approach by cryptocurrency projects with sustainability the major goal onwards.
Today we will be looking at some major facts about Cryptocurrency that you should know as we begin a new decade.
● Cryptocurrencies are Very Volatile
High volatility one of the first things that affects most cryptocurrencies. This is because crypto trading happens on several crypto exchanges instead of a central exchange like the traditional banking system.
It is not a strange occurrence for the value of cryptocurrencies to change rapidly. For example, Bitcoin suffered a drop from its record height of $20,000 to $7,000 within a few months.
Therefore, cryptocurrencies are not for the fainthearted as it is a high risk, high reward digital asset. If the value falls, there is no guarantee that it will rise again.
● Cryptocurrencies are Stored in Digital Wallets
Cryptocurrencies are typically stored in digital wallets that are designed for individual currencies. This means that each currency has a particular digital wallet that identifies with it. There is a private key for each cryptocurrency that is stored in the wallet of the user that owns the balance.
There are two major wallets Hot (Online) and Cold Wallet (Offline). It is always important to read on cryptocurrency wallet reviews to have a better knowledge of which wallet is perfect for your needs. Hot wallets are the most popular form with several exchanges offering such services. The most popular hot wallets include Blockchain, Trust wallet, Coinbase among others. Cold wallets are safer and harder to hack with the popular Ledger Nano X as a major example.
● Cryptocurrencies are Not Backed by Government Reserves
This is one of the major phenomena of cryptocurrencies as, unlike the traditional fiat currency that is backed by the central bank of the issuing country. Cryptocurrencies are not backed by governments or banks.
This is why it has attracted wide adoption as many crypto enthusiasts love the idea that cryptocurrencies are not controlled by the government. Additionally, economic problems such as recession or political issues like wars do not directly impact the value of cryptocurrencies.
● Cryptocurrencies are Built on Blockchain Technology
The financial sector is one that thrives on transparency, speed of transactions, and security of funds. Cryptocurrencies have been able to achieve these basic requirements with the use of distributed ledgers, also known as blockchain technology.
Blockchain technology is a digital and decentralized ledger that keeps records of payments and transactions in an efficient and transparent manner. This is the underlying technology behind the success of the popular cryptocurrency Bitcoin and has been applied across the crypto space.
● There are Thousands of Cryptocurrencies in the Market
For many mainstream followers, Bitcoin could be the major cryptocurrency that they’ve heard of. This is partly due to the popularity of the cryptocurrency as it occupies more than 60% of the total market cap in the crypto market.
However, there are thousands of digital currencies in the market known as altcoins. The popular ones in the top ten, such as Ethereum, Ripple, and Litecoin have a market cap that is over $1 billion in value.
Since blockchain technology is an open distributed ledger technology, it makes it easier for firms to develop their native digital technology. It is believed that there are more than 1,500 cryptocurrencies in circulation.
Mining is a Crucial Aspect of Cryptocurrency
Since cryptocurrency transactions are performed on distributed ledgers that provide anonymity of users. There must be a process where transactions are confirmed and verified. This function is performed by cryptocurrency miners.
Crypto miners use high powered computer processors (GPU) to solve the complex algorithms that are needed to verify and confirm transactions. The miners are then rewarded in the form of transaction fees and coins for performing this process.
As expected, crypto mining is profitable, but the hardware and electricity costs need to be factored in with big mining companies often the greatest beneficiaries.
Since its inception, cryptocurrencies have endured their fair share of criticism from major mainstream financial institutions. Popular investors like Warren Buffet and Jamie Dimon are notable critics of digital currencies due to its decentralized nature. This was further reinforced after the crypto carnage in 2018, where over 90% of the crypto market lost over 50% of their value. The criticism has waned in recent years due to the increasing potential of cryptocurrencies in the financial sector. Cryptocurrencies have displayed immense applications in various sectors and have shown that they are here to stay for the foreseeable future.