What Is Cryptocurrency? How It Works, Important Terms

 It seems that everyone is talking about it, or “crypto”, specifically. While it’s been in vogue for a couple of years now, it’d be pretty fair to say that crypto is a relatively niche market that people seem to think is composed only of tech bros.

However, crypto doesn’t have to be exclusive. Here’s a guide to what is cryptocurrency, how it works, and the most popular ones.

What is cryptocurrency? 

Short answer: A digital currency designed to work as a medium of exchange. However, its transactions are verified – and encrypted – algortihmically on a decentralized blockchain instead of by a central bank.

A cryptocurrency or digital asset is designed to work as a medium of exchange. It uses cryptography to secure and verify transactions as well as to control the creation of new units of a particular cryptocurrency.

Essentially, cryptocurrencies are limited entries in a database that no one can change unless specific conditions are fulfilled. Cryptocurrency can be bought, sold, traded, or stored. Cryptocurrency represents value for a service built on blockchain technology.

What is a blockchain?

Short answer: An open-source public ledger containing records of the transactions that have occurred on the network. 

Blockchain, sometimes referred to as Distributed Ledger Technology (DLT), makes the transactions of any digital asset unalterable and transparent through the use of decentralization and cryptographic hashing. Most blockchain-based cryptocurrencies use the public blockchain, however, there is a different type of blockchain which is the private blockchain.

What are digital assets? 

A digital asset, in general, is any content that is stored digitally. This content you are reading, images on Facebook, and all Google content you see are digital assets.

In the financial sector, though, digital assets are usually referred to as tradeable assets such as gold tokens for online gold trading or cryptocurrency. 

How does crypto work?

Now that we got some background info and important terminology out of the way, let’s dive into how crypto actually works and the different uses.

1. Trade or invest in crypto

Just like foreign currency (forex) trading, you can invest and trade in cryptocurrencies.

Again, just like in trading traditional stocks, you’d need to open a portfolio at an exchange. In the cryptoverse, your portfolio is usually referred to as a wallet. Your wallet has a unique address so assets can be sent to you, known as the public key, and can only be accessed by you using your private key – akin to a PIN code.

You can actually start trading right here on Zipmex. Zipmex is a highly secure digital assets exchange that’s regulated by the Security and Exchange Commission (SEC) and prioritizes its users’ security. We also offer assets like Bitcoin (BTC), Ethereum (ETH), Tether (USDT), and over 80 others at the best rates and the lowest spread.

2. Financial transactions

Many cryptocurrencies brand themselves as “digital money”. This means that just like how you can pay for something with Thai Baht, you can also buy or sell things with crypto. That is, if it’s legal in the country, of course

3. Mining

Mining crypto is another popular use for these digital assets.

The mining process involves solving extremely complex equations, known as hashes, to validate transactions on a network. In exchange for solving the hash the fastest, the miner is rewarded in crypto.