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Cryptocurrencies Are: Functions, How They Work, Plus-Minus, Types

Functions, How They Work, Plus-Minus, Types Cryptocurrencies

In 2021, cryptocurrencies have become a hot topic of conversation because the value of several cryptocurrencies has increased quite sharply at the beginning of the year. However, last May, Elon Musk uploaded a tweet on Twitter that made the price of cryptocurrencies that had been trending in the previous month experience a sharp decline. One of the most well-known cryptocurrencies is Bitcoin.

So, what exactly is cryptocurrency? You certainly need to know correctly about this cryptocurrency before deciding to invest in it. This article discusses the meaning of cryptocurrency, how cryptocurrencies work, functions, pluses and minuses, types, to cryptocurrency regulation in the world.

What are cryptocurrencies?

Cryptocurrency is digital or virtual currency that is secured by cryptography. Cryptography is the science of encryption techniques to maintain the security of messages by making the message meaningless. The “original text” or plaintext is scrambled using an encryption key into “hard-to-read random text” or ciphertext by someone who does not have the decryption key.

Encryption is an encoding process that converts the original text or messages that can be understood (plaintext) into coded text or messages that cannot be understood (ciphertext). While decryption is the opposite, namely the reversal process that changes the coded text or message that cannot be understood (ciphertext) into an original text or message that can be understood (plaintext).

In contrast to the centralized transaction model that has been used so far, this cryptocurrency has a decentralized nature. This means that there are no intermediaries in the transaction activities in it, the payment system takes place peer to peer or directly from the sender to the recipient. This decentralized nature is at the core of the blockchain system.

Cryptocurrency Functions

1. Transaction

There have been many companies or organizations that have accepted payments using this virtual currency, from hotels, airlines, restaurants, to applications. According to Cointelegraph, some examples are Dell, Steam, Fiverr, Overstock, Shopify, Etsy, Microsoft, Expedia, Air Baltic, and Subway in some locations.

2. Mining

According to Indodax CEO, Oscar Darmawan, in carrying out their work as described in the previous point, they will be rewarded in the form of Bitcoin and other crypto currencies (Ethereum, Litecoin, Bitcoin Cash, and so on).

3. Investment

In principle, in this cryptocurrency applies the law of supply and demand where the price will rise when the amount of demand increases. The more people who invest, the price will also go up. However, it must be remembered that cryptocurrency investments fall into the high risk category.

4. Trading

Due to high price fluctuations, many people take advantage of this for trading. The potential returns on trading cryptocurrencies are much higher compared to traditional types of investments such as stocks or other assets. However, it is necessary to recall the principle of high risk high return.

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