June 1, 2020

Frequently Asked Questions (FAQ) About Cryptocurrency

The purpose of this article is to provide the reader with common cryptocurrency facts. After its inception, cryptocurrency took the world by storm.

This created a series of headline stories, with some claiming cryptocurrencies to be millionaire-makers and others viewing them as dream-destroyers. 

Regardless, cryptocurrency is neither a fraud nor a golden nugget. Different people have strong views and differing positions on its structure, potential, relevance, and legitimacy. 

While diverse views are meaningful and provide great insights for enthusiasts to ponder, getting to know the facts is crucial. Understanding the facts provides a basis for having meaningful dialogues and questions about cryptocurrencies.

Here are 10 cryptocurrency facts to help you learn more about this industry.

Top 10 Cryptocurrency Facts

1)  How did cryptocurrency start?

Cryptocurrency is simply a digital currency that leverages cryptography or encryption to generate money and verify transactions. The history of cryptocurrency can be traced to the use of bit gold, which was used by Nick Szabo between 1998 and 2005.

Based on that, modern cryptocurrency started in 2008, when an anonymous group/person, Satoshi Nakamoto, released the first Bitcoin.
That said, Bitcoin became the first decentralized cryptocurrency, and went public in 2009.

Other crypto coins came into existence with time, including Ethereum, Ripple, Litecoin, and other altcoins. As of 2015, there were more than 500 cryptocurrencies available for digital currency exchange. 

2) What is an Altcoin?

Since the introduction of cryptocurrencies, Bitcoin has been the king and remains the original crypto coin credited for the invention of blockchain technology.

However, with evolving blockchain technology, the number of coins available increased. The new coins are generally referred to as Altcoins.

They utilize similar decentralized concept as Bitcoin, but with unique features. 

Altcoins have also improved in functionality, making it easy to process transactions and scaling to meet the demands of expanding digital currencies. 

3) Is cryptocurrency risky?

If you have been in touch and updated about various financial situations, you would be aware that cryptocurrencies are famous for their sudden, violent value lurches.

This explains why some percentage of those who invested in crypto coins are millionaires currently, while others were left crying for their money.
That said, you could be wondering why cryptocurrencies are prone to such vulnerability.

Many reasons contribute to cryptocurrency peaks and troughs. Among them include excessive media hype, political and governance issues, social media speculations, and regulatory moves. 

4) Is cryptocurrency illegal?

Among the widespread fictions that came up immediately after the introduction of cryptocurrencies is that it is the currency of choice for criminals.

Well, there is some truth about this, to some stretch. According to UTS research, approximately half of all Bitcoin transactions, which is the most popular cryptocurrency, was used in the purchase of illegal goods.

While that could be heartbreaking, the flipside is that the other half of Bitcoin transactions were used for safety purposes. That said, there is nothing inherently illegal about using cryptocurrencies and overall blockchain technology. 

5) Is cryptocurrency a scam?

Cryptocurrency is not a scam on its own. As mentioned, it is a digital currency, which can be used to make quick payments with no transaction fees.

However, as the number of people interested in cryptocurrency soars, scammers are finding ways to scam unsuspecting enthusiasts. Most scammers are offering business and investment opportunities that promise to double your initial investment for better financial freedom. 

While this isn't true, interested persons should avoid scammers who guarantee profits, promise big payouts, promise free money in cryptocurrencies or give unclear claims about cryptocurrencies. 

6) What is cryptocurrency mining?

Also called crypto mining, cryptocurrency mining is the process where transactions of cryptocurrency are verified and updated on the blockchain digital ledger.

The mining process is the source and responsible for introducing new coins into the existing supply, which enables cryptocurrencies to work as a peer-to-peer decentralized network.

The process involves willing cryptocurrency miners competing with other miners to solve complicated mathematical problems using cryptographic hash functions.

7) What is proof of work?

In blockchain technology, proof of work is used to confirm cryptocurrency transactions. As mentioned, cryptocurrency is underpinned in a distributed ledger called a blockchain.

The ledger has a record of all transactions, organized in sequential blocks so that no user can spend their holdings twice.

Therefore, for a block to be accepted by the blockchain, the miner has to complete the proof of work, which covers all the data in the block. 

8) What is proof of stake?

The proof of stake concept outlines that an individual can mine and validate a block transaction depending on the coins he/she holds. This means that the more crypto coins the miner has, the more mining power he/she has. 

Proof of stake was introduced as an alternative to proof of work, which is the initial consensus in blockchain technology used to confirm transactions and add new crypto blocks to the chain. 

9) Are all cryptocurrencies the same?

Cryptocurrencies are created for different purposes. For instance, Bitcoin, which is a popular crypto coin, is designed to be used as a currency.

Others, such as Ripple, are designed to speed up money transfers and facilitate international transactions. Basic Attention Token (BAT), on the other hand, facilitates online advertising.

While others such as Ethereum, are designed to run as development platforms for blockchain based decentralized applications.

10) Is cryptocurrency traceable?

While cryptocurrencies are well known for being anonymous, blockchain patterns can reveal information about the users after a transaction.

Unlike money released by the government, cryptocurrency has no banks, no physical notes, or Federal Reserve. Cryptocurrency transactions are nothing more than amounts associated with a unique string of letters and numbers and addresses.

Cryptocurrencies change hands several times. The past and present ownership of crypto coins are recorded in the blockchain, an ever-growing public ledger.

However, what remains private or hidden is the true identities of crypto coin owners. This is because owners use codes as their digital signatures in the blockchain instead of names. 

Final Thoughts

Hopefully, this list of cryptocurrency facts has dispelled any myths you may have heard. To novice cryptocurrency enthusiasts, the entire cryptocurrency and blockchain concept can be perplexing.

This is probably due to the several unproved pieces of information shared online about cryptocurrencies and their use. Understanding the facts about this digital currency is critical, especially for those looking to use them.

Get to know the various cryptocurrencies, intended use, the mining process, wallets, exchanges, and more. For further information, you may want to reference: 10 Best Cryptocurrency Books to Read in 2020 and Beyond, Free Cryptocurrency Trading Guide 2020, and Cryptocurrency Pros and Cons 2020.

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