Anyone who follows the economic news has probably come across articles about cryptocurrencies - especially bitcoin or Ethereum. However, even though they have been around for some time, not everyone knows how to get ideas or how to invest in cryptocurrencies.

 

If this is the case for you, you may be leaving options with the potential for growth, even if the return is not guaranteed. So it is important to know more about cryptocurrencies and how they work to determine if investing is worth it.

 

So, follow this content and see what cryptocurrencies are, how they work, and how to invest in these resources. Don't miss out!

 

What are cryptocurrencies?

Cryptocurrency is a digital asset that works just like money. That is, they can be used to make purchases, exchanges, transfers, fundraising, and more - just like a conventional currency.

 

However, unlike currencies like dollars and realities - which are issued in a paper sense - cryptocurrencies exist only in virtual environments. It restricts its use to Internet-based discussions between individuals and organizations who accept these resources as a means of payment.

 

In addition, both the issuance and storage of a cryptocurrency are accomplished through sophisticated software and technology. However, even if the interested party does not have a sophisticated computer or cell phone, they can access the cryptocurrency in a variety of ways.

 

It is important to note that each cryptocurrency has a specific code and thus, none is the same. This aspect prevents a lot of financial fraud, for example, you are not likely to get "fake bills or currency".

 

Also, cryptocurrencies are decentralized and not deposited in any country's government or central bank. Thus, they are not affected by economic policy, federal intervention, etc., and many countries still do not have specific laws about them.

 

However, this does not mean that doing business is an illegal practice. After all, investors do not have institutional protection if they have problems with their business.

 

How did cryptocurrencies come about?

The idea of ​​creating a virtual currency is linked to the cyberpunk movement and the idea of ​​anarchism, aimed at removing the state's presence from trade relations. The idea was greater independence, autonomy, and privacy, for example, in addition to reducing tax collection.

 

Many of these efforts failed in the 1990s. But, in the next century, the landscape changed and Bitcoin became the largest and most valuable cryptocurrency ever published.

 

In 2008, in the United States, the bankruptcy of Lehman Brothers Bank plunged the world into the worst economic crisis in history. In this context, an individual (or group) named Satoshi Nakamoto decided to create a virtual currency that was unrelated to any economy.

 

At first, only a small group of programmers had access to cryptocurrencies. But, over time, the currency began to gain popularity on the Internet and was adopted as an effective way to perform financial transactions.

 

The more people join Bitcoin, the more its value increases. Coin prices have risen significantly since 2013. That year, it went from $ 13 to $ 770 - which attracted investors and speculators because of its huge potential.

 

Since then, a few more currencies have started to emerge based on the same technology as Bitcoin. By 2022, there are more than 9,000 types of cryptocurrencies in the world - and new digital assets are competing for a place in this market every day.

 

How do cryptocurrencies work?

Once you understand the concept of cryptocurrencies and how they came about, it's worth learning how they work. So, it is worth noting that one of the reasons for making Bitcoin a very successful cryptocurrency was the technology behind it - blockchain.

 

It acts as large public and digital ledger responsible for recording all transactions with cryptocurrency. Each new transaction is stored in an encrypted block that needs to be verified to be accepted in the blockchain.

 

Several users of the network perform this procedure considering the information already available in the blockchain. If the new block exceeds validity, it is sequentially added to the previous block and is used for subsequent validation.

 

This dynamic creates an inviolable system, considering that it is not possible to modify or delete already registered blocks. There is no way to add new blocks with false or edited information, as they will rarely be verified by previous blocks.

 

Thus, in order for this system to be able to cheat, it is necessary to change the entire chain of blocks until the first (root block) is reached, which is virtually impossible.

 

How important is a blockchain for cryptocurrencies?

As you can see, blockchain works through a system of chained record blocks. The technology verifies and records all cryptocurrency transactions. This allows their system to record in real-time, 24 hours a day, any day of the week.

 

The presence of a banking institution or any other intermediary is not required for this transaction. Transactions are compiled, verified, and shared among system participants.

 

For this, users who verify the data - called miners - are rewarded with a portion of their operational fees. Whether for purchase, sale, or exchange, these fees are charged for each business and may vary depending on the network used.

 

Thus, the structure of blockchain technology is a factor responsible for the effectiveness of cryptocurrency. After all, it was designed to encrypt transactions and protect them from threats in the virtual environment.

 

For more than 15 years, no hacker has been able to successfully break the network record for using blockchain technology. Although many have tried. For example, cryptocurrency transactions are considered quite secure, although this is not always the way to access them.

 

It is noteworthy, however, that there are cryptocurrencies that do not use the blockchain protocol, although the technology is the most common in this market.

 

What are the main features of cryptocurrencies?

After learning more about how cryptocurrencies work, it is worthwhile to examine their key features. First, remember that they are part of a variable income class. So the price varies according to the market mood.

 

In reality, the value of a cryptocurrency monitors the law of supply and demand exclusively. So the more people are interested in buying cryptocurrency, the higher the price will be.

 

On the other hand, the tendency of cryptocurrencies to lower interest rates is to reduce their value to zero. Therefore, both those who want to invest in the long run and those who want to speculate in the market can use them.

 

There are also other features that bring important differentiators to cryptocurrencies. Check out!

 

Independence

Independence is one of the most interesting features of a cryptocurrency. As can be seen, they are decentralized and do not follow a financial system or central bank rules. Nor do they rely on the intervention of the banking institution to create or use them.

 

Anonymity

Another outstanding feature of these resources is their anonymity. Although cryptocurrency trading is public, users' personal information is not disclosed due to the transparency of the blockchain.

 

In other words, it is not possible to identify movements with blockchain information alone. This feature brings more freedom so that a person can buy whatever and whenever he wants without the risk of data leaks.

 

Negotiation

There are two main ways to trade cryptocurrency directly: peer-to-peer (P2P) and via exchange. In P2P, transactions are made between two users without intermediaries - using computer programs connected to the Internet.

 

Trade through exchanges is similar to stock exchanges. They are private companies that act as intermediaries for their clients' cryptocurrency negotiations, in the most diverse environments.

 

Costs

The cost of trading cryptocurrencies often varies depending on the network traffic used. When multiple transactions are processed simultaneously, fees tend to be more expensive. Yet, overall, the cost is low.

 

For example, in September 2021, a transfer of 44,598.42 bitcoins (about $2.1 billion) was recorded on the bitcoin blockchain network. The cost of the operation was 0.000001713 bitcoins (US$0.80). It was processed in just 1 minute.

 

Also, keep in mind that other fees may apply when using the exchange, such as a brokerage fee and an escrow fee. Some companies charge conversion and withdrawal fees for Fiat currency (real, dollar, euro, among others), as well as limiting the minimum amount that can be withdrawn.

 

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