Cryptocurrency is: Definition, How it Works and Types

Cryptocurrency is something that people are talking about recently. The term cryptocurrency is not new, especially for millennials and gen z who may know more about technological developments and investment.

In general, people know cryptocurrency as a digital currency which can then be used for digital transactions or as an investment.

Prices and characteristics of cryptocurrencies are very diverse, to get to know more about these cryptocurrencies, let's discuss together starting from their understanding, functions, how they work, types, advantages and disadvantages.

What is Cryptocurrency?

Cryptocurrency is a digital currency that can be used for transaction tools, using cryptography so that it is difficult to counterfeit. Crypto is a currency that is almost the same as dollars or rupiah, only it doesn't have a physical form, but you can still use it as a digital asset.

Although it does not have a physical form, this digital currency is still legal as a medium of exchange for several types of transactions. This digital currency is usually used to buy several digital assets such as buying goods online, or often also used to buy different types of digital currency.

Cryptocurrency Functions

As a legal medium of exchange, cryptocurrencies have several functions that are now common or frequently used. Here are some cryptocurrency functions that you need to know:

1. To Buy Goods or Services

The first function of digital currency is of course as a means of payment to buy goods or services. Until now, there have been many shops or shopping places that enforce or accept this digital currency as a means of payment for the goods or services they sell, for example, Overstock and Newegg.

Apart from this, this digital currency can even be used in various restaurants, hotels, travel applications, and even now there are universities that accept this digital currency as their means of payment.

However, not all types of digital currency are accepted, so far only Bitcoin is accepted to do all of these things.

2. As a Form of Investment

The second function of digital currency is as a medium or form of investment. This form of digital money investment is more or less the same as investing in general, where when the price is low enough, you can buy it. Then after the price is going up, you can sell it again.

This digital currency is a type of investment with a fairly high risk. At the beginning of its appearance, many people suddenly became rich because they invested in this digital money by enjoying the price increases that occurred in the market. But now this form of digital money investment is not as fast as when it appeared a few years ago.

3. Mining
The next function of this digital currency is mining. Mining is a term that is based on the activity of 'mining' to get this digital money asset. The term refers to activities to solve the cryptocurrency puzzle to enhance cryptocurrency assets.

To solve the puzzle is not easy, you need a lot of computing power. The more computing power you have, the greater your chance to solve the puzzle.

How Cryptocurrency Works

Cryptocurrency can be said to be a means of payment that is almost the same as a means of paying physical money today. The difference is that for this currency there is no central party that regulates the amount of circulation of this currency.

This is because the way this digital currency works is that when a transaction occurs using cryptocurrency, the transaction will produce cryptographic evidence that has been verified and recorded in the blockchain.

Types of Cryptocurrencies
After getting to know what cryptocurrency is, its functions and also how digital money works, now is the time for you to know what these types of digital currencies are. Currently there are various types of cryptocurrencies that exist in society, and here are some types of cryptocurrencies that are most trusted by the community:

1. Bitcoin

The first type of cryptocurrency is Bitcoin. Bitcoin is the most famous type of digital currency as well as the first type of digital currency known by many people in general.

Bitcoin itself first appeared in 2009 through a party named Satoshi Nakamoto. Then in 2019 there were at least 18 million Bitcoins traded. Until now more than 50% of digital currencies are Bitcoin.

2. Litecoin
The second type of cryptocurrency is Litecoin. Litecoin first appeared in 2011 as a P2P or peer to peer currency. This type of digital currency has a faster speed and has brought new blocks that will generate blockchain. Because of this, Litecoin also does not require a powerful computing system.

3. Dogecoin
The next type of cryptocurrency is Dogecoin. As the name implies, Dogecoin has a dog logo. Dogecoin is well known for its community that often does positive things such as doing charity and also donating. Apart from that, Dogecoin is also known to be cheaper when compared to Bitcoin.

4. BitcoinCash

The next type of cryptocurrency is BitcoinCash. BitcoinCash was first launched in August 2017. Although this type of digital currency is still new, BitcoinCash is already one of the best types of digital currency.

BitcoinCash exists because there are some parties who do not agree with the rules of Bitcoin. Some of these dissident parties then split from Bitcoin and decided to create their own currency which they later named BitcoinCash.

Advantages of Cryptocurrency
As a digital currency that has been widely used by the public, cryptocurrency certainly has several advantages that you need to know. Here are some of the advantages of digital currency:

1. Universal

The advantage of the first digital currency is that it is universal. This is because anyone can buy this digital currency. Apart from this, the parameters that become the benchmark for the exchange rate are also easier and not as much as conventional currencies in general.

2. Transactions Can Be Done Quickly

The second advantage of digital currency is that you can do transactions quickly. For example, if you are going to make a transaction between international banks, it can take up to a few days. Another thing with this digital currency, transactions can be carried out in minutes.

3. Personally Controlled

The next advantage of this digital currency is that you can control it personally. When you use this digital currency and even decide to invest, then you can work independently and be responsible for the assets you have.

Disadvantages of Cryptocurrencies

After knowing what are the advantages of this digital currency, of course this digital currency also has its own drawbacks. Here are some of the disadvantages of these cryptocurrencies:

1. Crime Occurrence

When you make this digital currency transaction, you cannot know who you are making the transaction with. You can only see information in the form of numbers such as how much the digital currency costs and so on. Because of this, this digital currency can be a place for money laundering or various things that can violate the law.

2. Considered Illegal

Although this digital currency is not new in society, there are still those who think that this digital currency is illegal. This is also because there are several countries that do not give permission to use the digital currency transaction facility.

Are You Interested in Cryptocurrency Investing?

That's some information about cryptocurrencies. Cryptocurrency is a digital currency asset that now many people know about. Based on this information, are you interested in this digital currency?