What is Cryptocurrency – Digital investment using cryptocurrency is currently on the rise among the public, especially investors. One of the most well-known and sought-after cryptocurrencies by investors is bitcoin. In fact, bitcoin is becoming one of the digital currencies that has a very high time.
However, not infrequently many novice investors do not know so deeply about cryptocurrencies. So, what is cryptocurrency? Here we will provide an explanation of cryptocurrencies in general.
What is Cryptocurrency
Linguistically, cryptocurrency comes from two words, namely cryptography and currency. Cryptography itself has the meaning of a secret code, while currency has the meaning of currency. Thus, cryptocurrency can literally be interpreted as a currency made from a collection of secret codes.
Cryptocurrency is indeed a digital currency that can be used to transact virtually using the internet network. The secret codes referred to in cryptocurrency are codes that are used to provide security guarantees for the digital currency.
The first time, secret codes or cryptographic technology was used by German soldiers in World War II. On that occasion, the German soldier sent a secret message to his comrade using cryptographic technology to prevent the message from being leaked to the opposing party.
The technology used in cryptocurrency transactions is usually decentralized. The decentralized nature of this cryptocurrency means that there is no particular party that acts as an intermediary or center to regulate transactions between users.
In cryptocurrencies, transactions are only carried out both, between the sender and recipient or often referred to as peer-to-peer. The use of a decentralized system in cryptocurrency is considered safer because it directly brings together the recipient and the sender.
However, every transaction in the cryptocurrency system will still be recorded in the cryptocurrency network. Usually, the recording of transactions in cryptocurrencies uses a service called a miner. These cryptocurrency miners have a duty to record transactions in cryptocurrencies. Miners will get income from service compensation that has been set in the form of digital currency.
Types of Cryptocurrencies
The existence of cryptocurrencies has actually emerged since the 1990s. However, cryptocurrencies have only been trending in the last ten years in the midst of society. One of the most well-known and best-selling cryptocurrencies in the community is Bitcoin.
Besides being the best known, Bitcoin is also the most widely used digital currency by the public. Bitcoin was created by someone who claims to be Satoshi Nakamoto. In fact, the true identity of Satoshi Nakamoto is still unknown.
Reportedly, Satoshi Nakamoto only created 21 million Bitcoin coins circulating in the community. According to experts, the amount of Bitcoin that much will not be mined until the year 2140. This is because the value of Bitcoin tends to be very high. As such, most investors take only a small amount of Bitcoin in the transaction process.
Besides Bitcoin, there are several other types of cryptocurrencies, such as Ethereum, Monero, Litecoin, Ripple, Bitcoin Cash, and many more. The reason is, the number of cryptocurrencies circulating in society today is around 1000 types of cryptocurrencies.
Of the total 1000 types of cryptocurrencies, there are at least three main types of cryptocurrencies that you need to know. Here are three types of cryptocurrencies that you need to know in general:
Bitcoin is arguably the first cryptocurrency circulating in the community. Bitcoin was first circulated in the community in 2009. However, Bitcoin was only popular in the community from 2013 to 2014. Meanwhile, the heyday of Bitcoin occurred in 2017. In 2017, the price of one Bitcoin has reached more than Rp. 266 million.
Altcoins is an acronym for alternative coins. Altcoins are tokens or coins that are usually alternative versions of Bitcoin with a few tweaks here and there.
However, not all altcoins are alternative versions of Bitcoin. There are also some altcoins that are very much different from Bitcoin, both in terms of the technology used and the purpose for which they were created.
One of the altcoins that is very much different from Bitcoin is Ethereum and NEO. Ethereum and NEO were not created as a means of buying or selling transactions. However, Ethereum and NEO were created as platforms to fund the process of creating blockchain-based applications.
How to transact using ethereum and NEO itself with a smart contract or smart contract. This smart contract will later become a substitute for third parties from miners who record transactions on the blockchain.
3. Token / DApps
Tokens can be considered as a reward for the many altcoins transactions carried out in a smart contract. Usually tokens can be in the form of physical or non-physical assets. The tokens used in decentralization apps (dApps) do not have their own blockchain.
Typically, tokens take advantage of a proprietary blockchain, such as Ethereum or NEO. However, tokens that utilize blockchain do not only use Ethereum or NEO, but can also use other altcoins that can be built into dApps.
Cryptocurrency Advantages and Disadvantages
All technologies created, both new and old, will have their own advantages and disadvantages. Although cryptocurrencies have advantages, as previously stated, apparently cryptocurrencies also have disadvantages.
Here are the advantages and disadvantages of cryptocurrencies:
- In the future, the price of cryptocurrencies has a high potential to increase.
- Personal data is highly secured because you can make transactions without revealing your personal identity.
- A currency that does not allow for two different transactions, thus greatly minimizing currency counterfeiting.
- The transaction process carried out can run quickly, safely, and easily.
- The existence of cryptocurrencies is sometimes prohibited in a number of countries, so it has the potential to violate the law.
- Must remember the password of the digital wallet owned. If the digital wallet password is forgotten, the cryptocurrency worth hundreds of millions of rupiah in our digital wallet can float.
- High volatility or uncertainty of value. So, this digital currency or cryptocurrency can drop and rise in price suddenly.
- The value of cryptocurrencies tends to be difficult to predict because it is related to the value of fiat currencies. Fiat currencies also have a very high probability of change. Thus, losses can be greater on cryptocurrencies.
How Cryptocurrency Works
Cryptocurrency has a fairly flexible way of working because it uses internet technology. You, as a cryptocurrency owner, can make transactions anytime and anywhere using your computer or smart phone.
In addition, you can also make transactions with people anywhere in the world using only your smartphone or computer. In addition, you don’t need a third party to make cryptocurrency transactions.
You only need to connect with the party who wants to receive or send cryptocurrency to you. This gives the effect of cryptocurrencies that the transactions you make can be completed in just minutes without having to worry about downtime.
In addition, both parties will receive information about ongoing transactions, both the sender and the recipient. The cryptocurrency sent to the recipient will be digitally signed using a private key.
This will make the data contained in the cryptocurrency transaction safe and cannot be accessed by anyone. Therefore, cryptocurrency transactions tend to have very high security.
However, there are things to note about cryptocurrency transactions. Transactions made in cryptocurrencies are permanent and irrevocable. Therefore, you must think before making a transaction so that your coins are not wasted.
Well, that was a little explanation about what cryptocurrency is. Hopefully it can add to your insight about cryptocurrencies. In addition, it can be a consideration to start investing in the cryptocurrency field.
That is all and thank you. See you in the next articles.