*This article was originally published on 01/23/2019 but was rewritten on 03/12/2021 for clarity.*
Recently, cryptocurrency awareness and adoption have skyrocketed. In 2020, many turned to Bitcoin as a store of value during the financial uncertainty of the COVID-19 crisis. For some, this increase in popularity may have come as a surprise because of Bitcoin's former reputation as a volatile and highly speculative asset. However, due to its decentralized nature and lack of oversight from central banks, Bitcoin was unscathed by the crisis's adverse financial effects. Instead, 2020 gave Bitcoin the chance to solidify its position as a safe haven asset and fulfill its role as digital gold.
Now, major corporations, financial institutions, and individuals are adding Bitcoin and other cryptocurrencies to their balance sheets. With all the hype, it is important to understand what cryptocurrencies are and what the future holds.
What is cryptocurrency?
In the most simple terms, a cryptocurrency is a form of digital money. Similar to traditional fiat currencies like the US Dollar or Euro, you can exchange cryptocurrency for goods and services, though not every store accepts them as payment at this time. Unlike traditional currency, cryptocurrencies are not controlled by any government. Instead, they are decentralized and use complex mathematics called cryptography to verify transactions.
Cryptocurrencies combine cryptography and a technology called the blockchain. Most cryptocurrencies have a native blockchain where all transactions are kept in a publicly available ledger. There are no central authorities when it comes to cryptocurrencies and blockchains. Instead, a network of computers called nodes monitor all transactions and confirm their validity.
Most cryptocurrencies are minted through a process known as mining. Miners are responsible for grouping transactions into "blocks." As new blocks of transactions are strung together, they created a chain - the blockchain. Once a block is added to the chain, it cannot be deleted or changed - blocks are permanent. They cannot be tampered with or erased, and the original order of blocks can never be disrupted. The chain only moves forward in time.
To add a new block to the chain, miners have to solve a cryptographic puzzle based on the block's transactions and other factors. Depending on the type of cryptocurrency, these puzzles often require specialized computers. Once the puzzle is solved, the miner that got it right broadcasts that they have added the block. Every time a miner adds a new block to the chain, they are rewarded in cryptocurrency. These rewards are how new crypto coins are introduced into the ecosystem.
There are thousands of different kinds of cryptocurrencies, and they all work in different ways. For some, mining new coins looks different from the example I provided above, referred to as Proof of Work. Bitcoin, the world's first, most valuable, and most popular cryptocurrency, uses Proof of Work to mint new coins and verify transactions.
How to buy cryptocurrency?
It is essential to research which coins are best suited for your needs before purchasing cryptocurrency. CoinMarketCap.com is an excellent place to start because it lists all of the cryptocurrencies by market value and provides detailed price charts and information about each coin.
With over 5,000 different cryptocurrencies available, likely, the vast majority of them will never be useful or profitable. Fortunately, CoinFlip has whittled down the long list of cryptocurrencies to just nine that we believe are the most valuable and reliable. To learn more about these coins and what makes them useful, click here.
Before purchasing cryptocurrency, you will need to have a crypto wallet. For more information about crypto wallets, check out this article with everything you need to know.
There are numerous ways to purchase cryptocurrency. Some of the most popular methods are online through cryptocurrency exchanges or in person at a Bitcoin ATM. With CoinFlip, you can buy crypto at one of our Bitcoin ATMs, online with a debit or credit card, or by bank transfer.
For more information on buying cryptocurrency for beginners, check out our definitive guide.
How does the future for cryptocurrency look?
Cryptocurrency and blockchain technology have the potential to revolutionize the way we do banking. These new technologies help streamline transactions, reduce the risk of fraud, and create more equitable financial systems. However, as a relatively new technology, cryptocurrencies are still just getting started.
As the cryptocurrencies like Bitcoin continue to become more popular, the technology behind them will be developed further for new purposes and applications. Currently, central bankers are considering launching central bank digital currencies (CBDCs) that take the technology behind cryptocurrencies and applying them to traditional fiat currencies like the dollar. Some countries like China and Sweden are already in more advanced stages with their CBDC development and are currently piloting them in certain areas.
What cryptocurrency has already shown is that blockchain has many uses in our digital world, which is likely not going away. New crypto and blockchain companies pop up every day in the financial technology sector. Many believe that cryptocurrency and the technology behind it are some of the most incredible advances in technology to happen in our lifetime and will play a massive role in shaping the future. Time can only tell what is in store for the future of cryptocurrency. Still, the technology has already done so much to disrupt the financial sector in the best way possible.
Sign up to get the latest in CoinFlip news, discounts, and more.
What is Bitcoin?
From hobbyists to advanced users, our informational guides make Bitcoin easy to understand for everyone.
New crypto ATM locations are popping up every day. Stay informed on new CoinFlip ATM locations near you.
Stay up to date on the latest CoinFlip news, discounts, industry trends, and more