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What Is Cryptocurrency?
Cryptocurrencies are a new financial system that aims to replace paper currency or become an investment asset. Basically, it is a collection of binary data and is used the same way money is. It gives people an opportunity to earn income by buying and selling crypto. In this article we will discuss cryptocurrency as a phenomenon and answer the “Why is cryptocurrency popular?” question.
How Does It Work?
Cryptocurrency is decentralized digital money that is based on blockchain technology and secured by cryptograph. Blockchain, decentralization, and cryptography are key terms to understanding how does cryptocurrency works.
Blockchain is a digital ledger with only authorized users having access to it. Any information shared is transparent and is impossible to change (even by the administrator).
Decentralization simply means that crypto is not ruled by banks or the government. This way it’s more secure than government-ruled centralized currencies.
Cryptography is the method that secures data from unauthorised access by the use of encryption techniques. So how does it work?
1. Mining
Cryptocurrencies are generated through a process called mining. Miners are required to solve certain mathematical puzzles to be rewarded with crypto.
2. Buying, selling, storing
Users can buy crypto from exchanges, brokers or individual currency owners or sell to them. Exchanges are the most convenient platforms for it. To story cryptocurrency you will need a wallet.
Hot wallets are connected to the internet, that makes them convenient for crypto transactions, but at the same time vulnerable to hacker attacks.
Cold wallets are physical devices, they look like thumb-drivers. These wallets are recognized as the safest.
3. Transacting
Cryptocurrencies nowadays can be easily transferred from one digital wallet to an another, using only a smartphone app. With crypto coins on hands you are able to:
- buy goods and services (with the help of cryptocurrency payment gateways such as NOWPayments, Cryptomus, Coinbase)
- trade in them
- exchange them for cash
Why Is Bitcoin Rising So Much
Bitcoin is the first and most popular cryptocurrency of all times. Bitcoin is famous with it’s drastical value changes. Experts say there will be more ups and downs for Bitcoin. But why Bitcoin is going up?
- Inflation: Investors seek ways of saving their capitals from inflation. Crypto serves as a store of value.
- Institutional adoption: Institutional adoption has a major effect on Bitcoin’s price. The price of BTC goes up when a government or a company buys it. It also builds trust in BTC, encouraging more individuals to start adopting crypto.
- Mainstream adoption: The speed at which cryptocurrency is being adopted is astronomical. They say it is being adopted by masses faster than the internet was in late 90s.
- Scarcity: There’s still bitcoin to be mined. The limit of coins available for circulation is 21 million. The controlled supply and limited number are the reason why so many regard Bitcoin as an ideal store of value.
- The Halving: The halving is the process of cutting reward given to miners by half every time 210000 blocks are added to the blockchain. It happens every four years. The result is Bitcoin’s inflation rate cut by half and the price of it usually rising.
The Reasons For The Popularity
Cryptocurrency has been a buzzword for many years now, but it’s popularity has been spiking in recent years. The 24-hours business news cycle has done its part to popularize and normalize discussions of crypto.
Countries now are more open to the concept of digital state currency. In September 2021, El Salvador became the first country accepting Bitcoin as legal tender. This historic move caught the eye of investors who were waiting for more legitimacy before buying crypto.
The other evidence of a cryptocurrency’s growing popularity is that real world utility for a long time was limited but now more merchants are accepting crypto as a payment.
So what are the reasons for cryptocurrency’s popularity? Here they are:
- Decentralized
- Cost-effective
- Easy transfer
- Fees are low
- Cryptos aren’t associated with World Governments
- There’s potential for profit
- It’s getting easier to use crypto
- Safer than traditional payment methods
- It’s easy to get
- It’s seen as the future of money
The Future Of Cryptocurrency
Currently cryptocurrencies are considered both a speculative instrument and a store of wealth, rather than a means of payment for ordinary transactions. Only a small portion of all actives is used for commercial transactions. Policymakers and bankers do not even see crypto as a real currency. So there are three scenarios of the future for crypto:
Ignore
Some currencies will definitely disappear as due to the great competition. Crypto cannot replace fiat at the current moment, exchanging fiat for crypto is not that easy: the cost of each transaction is still pretty high. As long as governments accept fiat, a move to cryptocurrency is unnecessary.
Outlaw
Outlawing cryptocurrencies would make sense only if there will be a risk of crypto destabilizing fiat. Besides, it must necessary be a global move. The problem is that using crypto is not a crime and there’s no evidence of it doing any harm
Regulate
That’s the most possible outcome. The only true concern is taxation. Regulators will likely prefer to use this as a tool to control the use of cryptocurrency.
In conclusion
Crypto will continue gaining popularity in the nearest future as it became more recognized and acceptable. Hope the article helped you to find out why is cryptocurrency so popular.