The dawn of the internet age has made the world a completely different place. People have instant access to all types of information and communication is more open than ever. The advancement of technology has even brought about a new form of money – cryptocurrency. While cryptocurrency has been in existence for a while (since the early 1980s), it’s only in recent years that the currency has been gaining more attention and traction. You may have heard of the term cryptocurrency, however, you may not fully understand what it is and how it works. Below is some useful information to give you an overview of the currency and its potential.
What is cryptocurrency?
A cryptocurrency is a form of digital money that is decentralized and runs on blockchain technology. Blockchain technology is known for its security as well as its decentralized nature which is managed across many computers. You can use cryptocurrency to buy certain products and services online, however, a lot of people use cryptocurrency as a form of investment.
One of the more confusing aspects of cryptocurrency is the variety of cryptocurrencies available. Currently, there are approximately 5,000 different types of cryptocurrency with many companies actually issuing their own currencies, often referred to as tokens. Understanding how cryptocurrency works can take a fair amount of research as each currency system is a little different.
5 Popular types of cryptocurrency
As already mentioned, there are thousands of different cryptocurrencies available, but you’ve likely heard of a few big ones. Below are a few of the most popular cryptocurrencies available.
Bitcoin is the cryptocurrency standard. It was created in 2008 and has been traded and mined since then. Some people prefer bitcoin to other forms of currency because is it pseudo-anonymous and there are no middlemen, which means you don’t have to contend with banks or associated fees.
- Ethereum (Ether)
Ether is the second-largest cryptocurrency after Bitcoin. Ethereum was launched in 2015 as a software platform for the cryptocurrency ether. Ether is used in two main ways. The first purpose is that of digital currency much like bitcoin. The second purpose of the currency is to be used within Ethereum to monetize work and run applications. Right now, it’s actually faster and easier to acquire ether than bitcoin.
- Litecoin (LTC)
Developed in 2011, Litecoin is very similar to Bitcoin. The two differ in their block generation rate. Litecoin has a faster blockchain generation and it also uses the Scrypt algorithm. Litecoin also has a higher coin limit, so this currency appeals to people for its speed and easy acquisition.
Cardano is the first peer-reviewed blockchain system. Cardano assembled a group of highly qualified scientists and academics to review the protocols before releasing the system. Cardano’s cryptocurrency is called ADA. In addition to the transactions you can complete with ADA, Cardano also allows users to create smart contracts.
Polkadot is similar to Ethereum with the main difference found in blockchain creation. With Polkadot, users can create their own blockchain while also using Polkadot’s built-in security. The company had the idea of shared security and formed Polkadot to bring the innovative system to the public.
The risk of investing in cryptocurrency
The cryptocurrency market is highly volatile with certain currencies in scarce supply which creates surges in demand. It’s not uncommon for currencies to see significant drops in value by hundreds and sometimes thousands of dollars. Another common cryptocurrency risk is hacking and errors. Mistakes can occur in the digital world resulting in technical glitches, and the cryptocurrency world is also a common target for hackers. When hacking occurs, it creates massive disruption and currency has even been stolen.
Despite the risks associated with cryptocurrency, it’s still been gaining a lot of traction in the news and with investors. When you look at the value of a currency like bitcoin, it’s easy to see why people are so interested. According to CoinDesk, one bitcoin is currently worth more than $58,000. The value of bitcoin has skyrocketed the last few years which has people eagerly jumping into the cryptocurrency game.
As with any investment, it’s important to fully understand the risks involved before investing your money. There is a lot to know about cryptocurrency in general as well as about individual currency options. If you plan to invest in cryptocurrency, narrow your currency options to your top three choices then do extensive research on each to thoroughly understand the pros and cons of each one. From there, you can decide if investing is the right move for you.