Cryptocurrency, decentralized digital money that’s based on Blockchain technology. You may be familiar with the most popular versions, Bitcoin and Ethereum, but there are more than 5,000 different cryptocurrencies in circulation. So let’s talk about the advantages of cryptocurrency.
Advantages of cryptocurrency: How Does Cryptocurrency Work?
A cryptocurrency is a medium, digital, encrypted, and decentralized exchange. Unlike the U.S. Dollar or the Euro, there is no central authority that manages and maintains the value of a cryptocurrency. Instead, these tasks are broadly distributed among a cryptocurrency’s users via the internet. This is one of the important advantages of cryptocurrency.
You can buy regular goods and services using crypto. Although most people invest in cryptocurrencies as they would in other assets, like stocks or precious metals. Cryptocurrency is a novel and exciting asset class. But purchasing it can be risky. So you must take on a fair amount of research to fully understand how each system works.
Bitcoin is the first cryptocurrency. It was released by Satoshi Nakamoto in 2008. Bitcoin is a Peer-to-Peer Electronic Cash System. Nakamoto described the project as “an electronic payment system based on cryptographic proof instead of trust.”
That cryptographic proof comes in the form of transactions that are verified and recorded on a blockchain.
Advantages of cryptocurrency: Cryptocurrency in Blockchain
A blockchain is an open, distributed ledger that records transactions in code. In practice, it’s a little like a checkbook that’s distributed across countless computers around the world. Transactions will record in “blocks” that are then linked together on a “chain” of previous cryptocurrency transactions.
“Imagine a book where you write down everything you spend money on each day,” says Buchi Okoro, CEO, and co-founder of the African cryptocurrency exchange Quidax. “Each page is similar to a block, and the entire book, a group of pages, is a blockchain.”
With a blockchain, everyone who uses a cryptocurrency has a copy of this book to create a unified transaction record. The software logs each new transaction as it happens, and every copy of the blockchain will update simultaneously with the new information, keeping all records identical and accurate.
To prevent fraud, each transaction will check using one of two main algorithms: proof of work or proof of stake.
Advantages of cryptocurrency: Proof of Work vs Proof of Stake Algorithms
Proof of work and proof of stake are two different algorithms used to verify transactions before they’re added to a blockchain that rewards verifiers with more cryptocurrency. Cryptocurrencies typically use either proof of work or proof of stake to verify transactions.
Proof of Work
“Proof of work is a method of verifying transactions on a blockchain in which an algorithm provides a mathematical problem that computers race to solve,” says Simon Oxenham, social media manager at Xcoins.com.
Each participating computer, often referred to as a “miner,” solves a mathematical puzzle that helps verify a group of transactions—referred to as a block—then adds them to the blockchain ledger. The first computer to do so successfully is rewarded with a small amount of cryptocurrency for its efforts. In our top list we’ve got counted casino game, video poker and live casino slots separately, as they do have relatively distinct payout charges within their niches. We’ve counted slots in this section too, as they can also be thought of among the slot games with the very best payout in cryptocurrency. Greatest casino games online to play on a mobile – online gambling bible.
This race to solve blockchain puzzles can require an intense amount of computer power and electricity. In practice, that means the miners might barely break even with the crypto they receive for validating transactions, after considering the costs of power and computing resources.
Proof of Stake
One of the advantages of cryptocurrency is using the Proof of Stake Algorithm. To reduce the amount of power necessary to check transactions, some cryptocurrencies use a proof of stake verification method. With proof of stake, the number of transactions each person can verify limited by the amount of cryptocurrency they’re willing to “stake,” or temporarily lock up in a communal safe, for the chance to participate in the process. “It’s almost like bank collateral,” says Okoro. Each person who stakes crypto is eligible to verify transactions, but the odds you’ll be chosen to do so increase with the amount you front.
“Because proof of stake removes energy-intensive equation solving, it’s much more efficient than proof of work, allowing for faster verification/confirmation times for transactions,” says Anton Altement, CEO of Osom Finance.
If a stake owner for validating a new group of transactions, they’ll be rewarded with cryptocurrency, potentially in the number of aggregate transaction fees from the block of transactions. To discourage fraud, if you are chosen and verify invalid transactions, you forfeit a part of what you staked.
The Role of Consensus in Cryptocurrency
Both proofs of stake and proof of work rely on consensus mechanisms to verify transactions. This means while each uses individual users to verify transactions, each verified transaction must check and approve by the majority of ledger holders.
For example, a hacker couldn’t alter the blockchain ledger unless they successfully got at least 51% of the ledgers to match their fraudulent version. The amount of resources necessary to do this makes fraud unlikely.
How Can You Mine Cryptocurrency?
One of the best and most Advantages of cryptocurrency is mining. Crypto Cloud Mining is how new units of cryptocurrency are released into the world, generally in exchange for validating transactions. While it’s theoretically possible for the average person to mine cryptocurrency, it’s increasingly difficult in proof of work systems, like Bitcoin.
“As the Bitcoin network grows, it gets more complicated, and more processing power required,” says Spencer Montgomery, founder of Uinta Crypto Consulting. “The average consumer used to be able to do this, but now it’s just too expensive. Some too many people have optimized their equipment and technology to outcompete.”
And remember: Proof of work cryptocurrencies require huge amounts of energy to mine. It estimates that 0.21% of all of the world’s electricity goes to powering Bitcoin farms. That’s roughly the same amount of power Switzerland uses in a year. It estimates most Bitcoin miners end up using 60% to 80% of what they earn from mining to cover electricity costs.
While it’s impractical for the average person to earn crypto by mining in a proof of work system, the proof of stake model requires less in the way of high-powered computing as validators chosen at random based on the amount they stake. It does, however, require that you already own a cryptocurrency to participate.
Advantages of cryptocurrency: Simple to use
You can use cryptocurrency to make purchases, but it’s not a form of payment with mainstream acceptance quite yet. A handful of online retailers like Overstock.com accept Bitcoin, but it’s far from the norm.
Until crypto more widely accepted, you can work around current limitations by exchanging cryptocurrency for gift cards. At eGifter, for instance, you can use Bitcoin to buy gift cards for Dunkin Donuts, Target, Apple, and select other retailers and restaurants. You may also be able to load cryptocurrency to a debit card to make purchases.
You may also use crypto as an alternative investment option outside of stocks and bonds. “The best-known crypto, Bitcoin, is a secure, decentralized currency that has become a store of value like gold”. Says David Zeiler, a cryptocurrency expert and associate editor for financial news site Money Morning. “Some people even refer to it as ‘digital gold.’”
Advantages of cryptocurrency: Secure Purchases
Using crypto to securely make purchases depends on what you’re trying to buy. If you’d like to spend cryptocurrency at a retailer that doesn’t accept it directly, you can use a cryptocurrency debit card, like BitPay, in the U.S.
If you’re trying to pay a person or retailer who accepts cryptocurrency, you’ll need a cryptocurrency wallet, which is a software program that interacts with the blockchain and allows users to send and receive cryptocurrency.
To transfer money from your wallet, you can scan the QR code of your recipient or enter their wallet address manually. Some services make this easier by allowing you to enter a phone number or select a contact from your phone. Depending on the cryptocurrency, this may take between 10 minutes and two hours.
This lag time, though, is part of what makes crypto transactions secure. “A bad actor trying to alter a transaction won’t have the proper software ‘keys,’ which means the network will reject the transaction. The network also polices and prevents double-spending,” Zeiler says.
How to Invest in Cryptocurrency
Cryptocurrency can purchased on peer-to-peer networks and cryptocurrency exchanges, such as Binance, CoinEx, Luno, and Upbit. Keep an eye out for fees, though, as some of these exchanges charge what can be prohibitively high costs on small crypto purchases.
More recently, the investing app Robinhood started offering the ability to buy several of the top cryptocurrencies, including Bitcoin, Ethereum, and Dogecoin, without the fees of many of the major exchanges.
“It was once fairly difficult but now it’s relatively easy, even for crypto novices,” Zeiler says. “An exchange like Coinbase caters to non-technical folks. It’s very easy to set up an account there and link it to a bank account.”
But keep in mind that buying individual cryptocurrencies is a little like buying individual stocks. Since you’re putting all of your money into one security, you take on more risk than if you spread it out over hundreds or thousands, like you could with a mutual fund or exchange-traded fund (ETF). Unfortunately, crypto funds are currently in short supply.
If you want exposure to the crypto market, you might invest in individual stocks of crypto companies. “As far as crypto-oriented stocks go, Coinbase has an IPO sometime in 2021,” Zeiler says. “There are also a few Bitcoin mining stocks such as Hive Blockchain (HIVE). If you want some crypto exposure with less risk, you can invest in big companies. They are adopting blockchain technology, such as IBM, Bank of America, and Microsoft.”
Should You Invest in Cryptocurrency?
Experts hold mixed opinions about investing in cryptocurrency. Crypto is a highly speculative investment, with the potential for intense price swings. So some financial advisors don’t recommend people invest at all.
For example, while Bitcoin nearly doubled in value over the last year, reaching a price of over $18,000 in November 2020, it also drastically lost value in the same year, like when it bottomed out at under $5,000 per Bitcoin. Even Bitcoin’s recent highs, however, are still lower than its 2017 peak of about $20,000 per Bitcoin. Cryptocurrencies, unlike most established currencies, can be very volatile and change value frequently. It is good to invest in cryptocurrencies. You should have information and take the risks.