Just about everyone has heard of digital currencies. Still, there is a lot of confusion about what they are. Everyone knows that people who invested in Bitcoin early got rich. But most folks don’t understand what it is about cryptocurrencies that make them so valuable.
What Are Cryptocurrencies?
When most people think about currency, they think about coins or paper bills. Even though most people transfer money electronically through PayPal and other platforms, they are comforted by the fact that they can go to an ATM and take out dollars if needed.
Digital currencies have no physical counterpart. They only exist in electronic form. Their storage, usage, and exchange are all done electronically. Bitcoin is one of the well-known forms of cryptocurrency.
You may wonder why you should care about cryptocurrency. In less than a decade, cryptocurrencies have gone from being a fringe concept to a mainstay in the financial world. Many people forecast cryptocurrency as the future of finance.
Understanding Cryptocurrency Terminology
Digital currencies have unique terms. If you aren’t familiar with these terms, they are unclear. For example, the term “altcoin” refers to all coins that are not Bitcoin.
A cryptocurrency exchange denotes a marketplace where you can purchase and sell cryptocurrencies. People often use fiat currencies, like the US dollar, to purchase cryptocurrencies. There are several reputable cryptocurrency exchanges. Speaking about their cryptocurrency exchange, the financial experts at SoFi Invest said, “Your purchase of cryptocurrency, by the dollar or by the coin, happens in real-time. Should you sell all or some of your crypto holdings on SoFi Invest, it will be returned as USD to your account instantly.”
If you hear someone talk about ICO, they are referring to the initial coin offering. This is the first time the cryptocurrency is on the market and can be sold to investors.
Decentralized Versus Centralized Cryptocurrencies
Cryptocurrencies fall into two categories. They can be centralized or decentralized. A centralized digital currency is controlled and backed by the government. It is regulated.
However, decentralized currencies are not regulated. Both regulated and unregulated currencies rely on blockchain technology. The only difference is whether or not a central bank controls the currency’s value.
Some people see centralized cryptocurrency as advantageous because they get the security of the blockchain and know that there are safeguards in place protecting their digital holdings. Decentralized cryptocurrencies are also attractive to many, especially those suspicious of governmental or financial regulatory bodies. They don’t want a middleman controlling their resources.
How to Use Digital Currency
You can use your digital currency in the same way you use fiat currency. There are thousands of retailers that accept Bitcoin. You need a Bitcoin wallet. Your Bitcoin wallet can be a physical device where you store your Bitcoin. It can be an app on your phone, which is similar to a mobile banking app that allows you to accept or pay with digital currency.
Digital Currency Is the Way of the Future
There is no denying that regulated or unregulated cryptocurrencies are here to stay. The more you learn about them now, the better equipped you will be to use them moving forward.