Cryptocurrency (CC) is a digital currency used on the internet for trading, exchanging, and making payments. The reliability and security of the CC are ensured through the use of cryptography. Dollars, euros, yen, and pounds are also used on the web as electronic tokens, but these currencies are not completely virtual, as they can be cashed out at any time without incurring an exchange fee.

Crypto is a special means of payment that has no physical counterpart; coins cannot disappear, as they are an entry in the general ledger. The entry remains in place forever and cannot be altered. We can say that digital money is securely protected, but how can it be used?

The popularity of CCs continues to grow every year. They can be used for investments and wholesale or retail purchases on online marketplaces; coins are also actively used for trading. You can create a crypto wallet and exchange CCs, trying to take advantage of the changing exchange rate, or you can use CFDs to earn income without actually having crypto. It’s good that many brokers allow crypto trading. For example, AvaTrade has some of the best conditions today. In this article, we answer the question “What are cryptocurrencies?” and explain how they work, as well as the various types of cryptocurrencies.

Function of the Blockchain

The blockchain is a global ledger where all transactions are recorded; it is transparent, and each participant in the system can access this information. Just so you know, the information in the registry is recorded sequentially, and you can only write new data there without the option to make corrections. The main feature of the blockchain is the absence of one or more control centres; that is, private or government organisations cannot withdraw your coins or freeze them in your account. Coins are not taxed, so it is always beneficial to use them.

The downside is that cryptocurrencies are not officially recognised in some countries, and transactions using coins are often difficult. On the other hand, CCs are expanding their geographical reach, and an increasing number of countries are allowing the use of coins for online payments. The government cannot block a crypto wallet, so many companies keep part of their capital in Bitcoins or other electronic currencies. Let’s explore further the various methods of obtaining and storing cryptocurrency that exist today.

Mining, Stacking, Storing

You can get new coins by mining. You must purchase equipment of sufficient capacity to solve several complex mathematical problems. If you get ahead of your competitors, your entry appears in the registry, and you receive your portion of coins. After a while, you can spend your coins or sell them at the current exchange rate.

Staking involves storing someone else’s cryptocurrency; when you act as a security guarantor and are a third party in the transaction, you receive additional coins in your wallet. Using these two methods, mining and staking, you can increase your balance on a crypto wallet. You can also purchase CCs using fiat money (e.g., dollars, euros, yuan, yen, lira, and others).

Let’s discuss the storage. The coins are stored in special wallets with keys. You can store the keys online or download them to a flash card. Cases of crypto theft are extremely rare because CCs are well protected. We remind you that when you use CFDs, you do not need to create a crypto wallet. Next, we discuss which CCs are currently popular and which are less commonly used.

Types of Cryptocurrencies: Bitcoins, Altcoins, and Stablecoins

Bitcoin is considered the most popular and fastest-growing cryptocurrency today. BTC appeared at the end of 2008, as announced by its creator, Satoshi Nakamoto. Users appreciated the low transfer fees and the decentralised operation, which allows them to protect their capital from external influences. Altcoins are all coins that are not Bitcoin. You should not think they’re any worse; in some cases, they’re better because they use advanced technology.

The Bitcoin protocol has been continually improving for many years, which has led to the emergence of other notable cryptocurrencies, including Ripple, Ethereum, Litecoin, Dogecoin, and others. Every week, there is news about the appearance of a new coin; this is a natural process because there is no limit to perfection, and the new CCs no longer have the disadvantages that their predecessors had.

There are also stablecoins (SCs), which are special electronic currencies designed to combat price fluctuations. In other words, stablecoins are well-suited to withstand high volatility. Stablecoins are pegged to stable currencies or precious metals. For instance, USDCoin is pegged to the dollar exchange rate. In addition, SCs facilitate calculations and simplify transactions. Many novice traders choose stablecoins to store their capital for convenience. SCs are quite secure and have a high transaction processing speed.