Everybody is talking about Cryptocurrencies and how to make money with it. But nobody really knows what a Cryptocurrency is or how they work. But don t worry, we’ll explain it to you in the simplest way possible.
So what is actually a Cryptocurrency?
A cryptocurrency is a subset of digital currency and is used as an asset for exchanging. So it uses hashes, a strong cryptography, to secure your transactions. Therefore they are based on Blockchain Technology. So it is decentralized and isn´t controlled by a third party like a bank.
They are like digital assets. So they have value and can be sold for money. You can compare them to gold. Not everybody accepts gold when you wanna trade with them. But it has still the same value all over the world. The same applies for cryptos.
Bitcoin was the first Cryptocurrency to gain worldwide acceptance. Since then many more Cryptocurrencies have been created. However, Bitcoin is still the best known and most valuable in the world.
How does Cryptocurrency work?
So Cryptocurrency work based on a blockchain. It is a system that records and checks every transaction in the background. Anyone with a computer and a program can be part of the network.
So If a transaction is made on the Blockchain, a computer writes it down, checks it and insert it into a block. It also notes when the block was created and which was the last block. So the first computer that has calculated a new, complete and correct block is allowed to insert it into the blockchain. These computers are also called miners.
If all members of the Blockchain agree that everything is correct, the miner that successfully added a block will be rewarded with a Cryptocurrency. So if you mine on a Bitcoin Bockchain you will get a Bitcoin as a reward. If you mine on an Ethereum blockchain you will get an Ethereum as a reward. So it depends on which Blockchain you are working.
What can you do with Cryptocurrencies?
You can use Cryptocurrency the same way you are using your money. So if the shop accepts Cryptocurrency, you can buy things there.y The only difference is that it only exists in digital form and it has no stable value.
At the moment, cryptocurrency is used almost exclusively for trading and investing. This means that many people, for example, buy bitcoin as an asset. So they hope that the value of the coin goes up and they make a lot of money with it.