How Does Cryptocurrency Work? The Technology Explained

You’ve probably heard of cryptocurrency: Dogecoin and Bitcoin have both been making big headlines this year, and the latter has soared in popularity in recent years. According to recent statistics, around 46 million Americans now own Bitcoin!

Yet how does cryptocurrency actually work? What is its value? Where can you use it?

In this guide, we’re going to cut through the jargon and take a look at what crypto really is and everything that you need to know about it. Ready to get started? Then read on!

What Is Cryptocurrency?

Cryptocurrency is effectively electronic money. It’s a form of currency that almost exclusively exists online (you can sometimes buy physical Bitcoins but these aren’t common).

While this might seem like a strange concept, fiat currency is heading in the same direction. If you rarely use cash, you’re already using “electronic currency,” just in a different form to crypto.

Unlike fiat currency, cryptocurrency is decentralized and can be used all around the world. It doesn’t have the backing of any government: the only backing it has comes from its users.

Why Is Cryptocurrency Valuable?

One of the biggest sticking points that people have with crypto is discerning why it’s valuable. If it’s not backed by a government, what gives it value? The truth is, it has value for the same reason as any other currency: people accept it as payment!

No nation’s currency is on the gold standard today, which means that it only has value because the government says it does. Crypto only has value because people say it does and accept it as payment. 

How Can You Get Cryptocurrency?

If you want to get your hands on cryptocurrency, you’ve got two options: investing in cryptocurrency or mining it. Investing is easy. If you want to buy and sell Ethereum, for example, you can use an ATM or currency exchange to swap your dollars for crypto.

So, how does cryptocurrency mining work? This process is a little more involved. You use your computing power to verify transactions on the blockchain, the decentralized ledger of all transactions that crypto has been used for.

The only issue with mining is that it uses a lot of computing power and other users with more powerful machines will be trying to outcompete you. You might rack up a huge power bill and gain a few dollars in crypto. For most people and most cryptocurrencies, it’s not worth it in 2021.

What Can I Do With Cryptocurrency?

What is cryptocurrency used for? It’s gaining a lot of popularity in the world of online payments, and you can already use it to buy products from Starbucks, AXA Insurance, and Home Depot.

Then, of course, you can also treat it as an investment. If you do this, remember the golden rule: never invest money that you can’t afford to lose.

How Does Cryptocurrency Work: Answered

We hope you’ve enjoyed this quick look at the key question of “how does cryptocurrency work?” As crypto gains popularity, you’ll likely see more stores start to accept it and new cryptocurrencies pop up, allowing for a diverse investment portfolio.

For more informative articles like this, check out the rest of our blog!

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