Cryptocurrency might be intimidating for the number of letters used to spell it or the way it makes us take time to pronounce its syllables. Beyond that, if anybody knows buying or selling, sending, or investing money, that is 90% of cryptocurrency understood.
How is money produced?
Our governments produce and regulate our currencies. Making new notes or coins is usually the duty of the country’s central bank or another institution authorised by the government.
With cryptocurrencies, this is achieved through what is called mining.
Mining is a process involving several computers tasked with solving a problem. The first computer to solve the given problem is rewarded with an amount of the currency in the form of digital coins. These are added to the pool of usable coins available to that platform’s users.
How does someone earn cryptocurrency?
In the traditional system, the central bank or the country’s money regulating body introduces money into the system which gets to citizens through salaries or payments for work done.
With cryptocurrencies, and for now, coins are earned through purchasing. In simpler terms, we can buy cryptocurrencies with our traditional money, for example, dollars or euros.
There are a variety of ways to do this and depending on the platform they may include purchasing through bank transfers, credit card, or even cash. There are even outlets that offer discount vouchers that allow purchase of cryptocurrencies at reduced prices.
How does someone keep their cryptocurrency?
In normal life, we keep money in our pockets and wallets or leave them in a bank account. When we have to make transactions we either reach out for money from our pockets or wallets, or do bank transfers.
Cryptocurrencies cannot be stored in pockets but in wallets. These wallets function like bank accounts. Transactions are made from them and they keep records of earnings and expenditure.
The good thing about this is that you don’t have to carry money around to enjoy the things you do every day and you can make transactions anywhere, anytime.
How does someone invest in cryptocurrencies?
With our traditional systems, you can invest by buying stocks, treasury bills, or through fixed deposits. Investment opportunities vary with different cryptocurrency platforms.
Certain platforms have criteria that allow investors to own computers or machinery used for mining. Subsequently, they earn profits when their computers mine.
Other platforms allow investors to lock their coins and not use them for a given period in order to earn profits. This is a comparable option for investors used to fixed deposits or treasury bills.
In spite of these variations, there are certainly modalities that match traditional investment preferences.
How do cryptocurrencies keep a record of all the transactions of its global users?
Prior to financial software systems, transactions were recorded in journals and organised using ledgers. This tiring process has been relegated by organisations that use software that automate many of the recording processes. As an example, a teller enters the account number or name, amount to be withdrawn, or deposited and the software takes it up from there.
Cryptocurrencies are even easier to use. There are no need for tellers. When a transaction is made, the information about the user, type of transaction and amount involved, is automatically sent to all computers used to regulate the platform and this is recorded. Much like the traditional ledger, cryptocurrencies use their ledgers to record transactions.
There are more ways cryptocurrencies are similar to our traditional currencies. It isn’t difficult to understand after all.
If you are in the cryptocurrency business, it is likely that you fully understand the process and its technicalities. However, your investors might not be as well versed.
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