Cryptocurrency basics

Cryptocurrency basics

Since the price of Bitcoin broke the $7,000 barrier, the trading world couldn't help but follow this digital currency closely. Although Bitcoin was the first digital currency in the world, it is not the only one. There are more than 1,000 types of cryptocurrencies available, so what exactly are cryptocurrencies and how can traders benefit from them?

Cryptocurrency is a form of digital money that exists only on the Internet. The difference between it and the digital money you use every day (cards and online transfers denominated in your country's currency) is that this type of currency is not issued by any bank or government.

Bitcoin and a large number of other cryptocurrencies, such as Litecoin and Ethereum, are created through a process called “mining”, while other cryptocurrencies, such as Ripple and NEO, are provided and pumped directly into the market. These digital currencies are also known as coin mining.

What is Bitcoin?

Before we delve into explaining digital currencies, let's first take a closer look at Bitcoin. Understanding the basics of Bitcoin is crucial for traders looking to add cryptocurrencies to their trading basket. Bitcoin was created in 2009, and was launched by an anonymous person or group of people under the moniker Satoshi Nakamoto. Bitcoin was designed to facilitate the rapid implementation of payments without the need for a central authority.

This revolutionary idea is based on a revolutionary technology known as Blockchain software. You can think of a blockchain as a publicly available document in which all Bitcoin transactions are stored. The reason Bitcoin can operate without the need for a bank is precisely because blockchain technology makes digital transactions available for everyone to see and verify.

 Main characteristics of the digital currency Bitcoin

1. Limited offer

Bitcoin was programmed into a limited supply by Satoshi with a supply volume of 21 million coins. This information is extremely important when evaluating the price of an asset. This means that no bank can pump more currencies into the market (which central banks do in a procedure known as quantitative easing). For this reason, Bitcoin is often seen as an inflation-resistant currency and is often compared by traders to gold.

2. Minable

Bitcoin is created through mining. This means that the currency's developers have joined the network and that volunteers have verified the validity of Bitcoin transactions, so that the system can operate without interference from official authorities. In return, these volunteers receive a reward in the form of Bitcoins, for the time and electrical energy they used.

3. Fast transactions

Bitcoin transactions are verified on average every 10 minutes. This means that you can use Bitcoin to send money anywhere in the world within 10 minutes, even during the weekend. This may sound exciting, but Bitcoin is not the fastest payment method available, and this is due to the launch of new cryptocurrencies with a greater focus on the speed of completing transactions.

 

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