Below, we review everything you need to know about these digital assets.
What Is Cryptocurrency?
A cryptocurrency is a digital asset that uses cryptographic encryption to guarantee its ownership and ensure the integrity of transactions, and control the creation of additional units, that is, prevent someone from making copies as we would, for example, with a photo. These coins do not exist in physical form: they are stored in a digital wallet.
How Do Cryptocurrencies Work?
Cryptocurrencies have various differentiating characteristics compared to traditional systems: they are not regulated or controlled by any institution and do not require intermediaries in transactions. A decentralized database, blockchain or shared accounting record is used to control these transactions.
In line with the regulation, cryptocurrencies are not considered a means of payment, they do not have the backing of a central bank or other public authorities and they are not covered by customer protection mechanisms such as the Deposit Guarantee Fund or the Fund Investor Guarantee.
Regarding the operation of these digital currencies, it is very important to remember that once the transaction with cryptocurrencies is carried out, that is, when the digital asset is bought or sold, it is not possible to cancel the operation because the blockchain is a record that It does not allow you to delete data. To “reverse” a transaction it is necessary to execute the opposite one.
Since these coins are not physically available, you have to resort to a digital cryptocurrency wallet service, which is not regulated to store them.
How Many Types Of Digital Wallets Are There?
A digital purse or wallet is actually a software or application where it is possible to store, send and receive cryptocurrencies. The truth is that unlike a physical money wallet, what is really stored in digital wallets or wallets are the keys that give us ownership and rights over cryptocurrencies, and allow us to operate with them. In other words, it is enough to know the keys to be able to transfer the cryptocurrencies, and the loss or theft of the keys can mean the loss of the cryptocurrencies, with no possibility of recovering them.
There are two types of wallets: there are hot ones and cold ones. The difference between the two is that the former are connected to the internet, and the latter are not. Thus, within the hot wallets we find web wallets, mobile wallets and desktop wallets, the latter only in the case that the computer is connected to the internet. On the contrary, within cold wallets there are hardware wallets and paper wallets, which is simply the printing of the private key on paper.
These escrow services are not regulated or supervised.
How Is The Value Of A Cryptocurrency Determined?
The value of cryptocurrencies varies depending on supply, demand, and user commitment. This value is formed in the absence of effective mechanisms that prevent its manipulation, such as those present in regulated securities markets. On many occasions, prices are also formed without public information to support them. We recommend you read this statement from the Bank of Spain and the National Securities Market Commission (CNMV) on the risks of buying cryptocurrencies.
Cryptocurrencies Use Blockchain
Cryptocurrencies work through the shared ledger or blockchain. This technology provides them with a high security system with the capacity to prevent, for example, that the same digital asset can be transferred twice or that it is counterfeited. Blockchain technology works like a large ledger where vast amounts of information can be recorded and stored. All of it is shared on the network and protected in such a way that all the data it houses cannot be altered or deleted.
What Does It Mean To Mine Cryptocurrencies?
This concept refers to the process necessary to validate the operations that are carried out through this type of digital assets. For example, if we take the practical case of a bitcoin currency: its mining would be based on the validation and registration of transactions in the blockchain registry.
In short, mining cryptocurrencies means successfully solving the mathematical problems that arise. The miners who have carried it out obtain cryptocurrencies in exchange.
How Many Types Of Cryptocurrencies Are There?
To create cryptocurrencies, it is crucial to have knowledge of cryptography, or at least, to know how to program, in that case, to be able to clone code from another cryptocurrency, and thus be able to create it. Currently, there are thousands of cryptocurrencies, among which we find, for example, bitcoin or ether.
What Is Bitcoin?
Bitcoin is the name given to the first cryptocurrency. It dates from the year 2009 and was born by the hand of a person or group of people who called themselves Satoshi Nakamoto, who managed to create bitcoin under blockchain technology, which they themselves invented. Like the rest of cryptocurrencies, there is no type of regulation for it.
How Can You Acquire Bitcoins?
We can get bitcoins by buying or exchanging the currency itself in specialized portals. It is important to bear in mind that bitcoins -or any other cryptocurrency- are complex instruments, which may not be suitable for people without sufficient knowledge, and whose price involves a high speculative component that can even mean the total loss of the money paid to buy the cryptocurrencies.
If you want more information about bitcoin, you can access this Openbank content. Also, if you want to know all the curiosities around this currency, you can visit this information from Finance for Mortals.
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