Crypto 101: What You Need to Know About Cryptocurrency
Recently, the name cryptocurrency has become a hot topic of conversation on social media and is predicted to become one of the promised expected in the future. Hmm, what does this name actually mean, and how does it work? You can get some basic information about cryptocurrency through the following discussion.
Cryptocurrency is a virtual currency under cryptographic control, making it impossible for the currency to be counterfeited or carry out duplicate transactions illegally. As a currency, we can buy goods and services available on the online platform through an online ledger called cryptography to store the transaction process.
Citing a source from BitDegree, cryptocurrency has several definitions based on the characteristics and uses of cryptocurrency:
- Digital: Cryptocurrency is a digital currency that is only available on a digital platform and does not exist in a physical form.
- Peer-to-peer: Cryptocurrency can be used to do transactions between one person and another directly on the online platform.
- Global: Cryptocurrency can be used in various countries to allow transactions abroad. This is because cryptocurrencies in each country are the same and have no difference.
- Encrypted: When transacting using cryptocurrency, each user has their own code. This also causes other users to be unable to find out what transactions were carried out by other people or the source of the transactions by whom. The name used when transacting using cryptocurrency is also not the user’s real name (pseudonym).
- Decentralized: In cryptocurrency, there is no intermediary party such as a bank to accommodate the money that is owned by users. Each user is responsible for the money they have.
- Truthless: When transacting using cryptocurrency, you don’t need to trust anyone in order to function.
Looking at these various definitions, it can be seen how cryptocurrency works in contrast to the physical currency that is often used for daily transactions. You can make transactions independently without the presence of a third party.
Apart from being a currency, cryptocurrency is also widely used as an investment instrument.
Cryptocurrency works using a technology called blockchain, which is decentralized in computer networks to regulate and record every incoming transaction.
Types of Cryptocurrencies
In the transaction process, there are several types of cryptocurrencies that can be used in cryptocurrency. The type that first emerged was Bitcoin which was launched by a group using the pseudonym Satoshi Nakamoto in 2009. Bitcoin has no physical form and all storage is done digitally. Until now, Bitcoin is still a currency that has a fairly high value. Based on reports from Coinbase, in March 2021, 18.6 million bitcoin transactions have been accumulated with a total market cap of $ 927 trillion. Bitcoin itself represents 60% of the aggregate value of the cryptocurrency.
Now, there are many types of currencies besides Bitcoin, some of these types are referred to as altcoins, some of which include Ethereum, Namecoin, Litecoin, EOS, Cardano, and many more.
How Does Cryptocurrency Works?
How cryptocurrency itself works in the process will look complicated, but it should be noted that in order to understand how cryptocurrency itself works it is necessary to understand the basic concepts of digital currency. Cited from CryptoCurrency Facts, here is a summary of how a cryptocurrency works:
- Transactions sent between users via software are referred to as cryptocurrency wallets. Users will make transactions from a software wallet to transfer some money to other users. Sames as when inserting a card into an ATM, when making transactions through a cryptocurrency wallet it also requires a password created by the user.
- When the transaction has been completed, the transaction will be automatically encrypted and will be announced through the wider cryptocurrency network and then the transaction will enter the public ledger queue.
- The process of transactions that are recorded in the public ledger is known as mining (the process of mining bitcoin in cryptocurrency).
- The recorded transaction can be accessed by all cryptocurrency users, but the sender of the transaction is anonymous. However, to later be able to access the sent transaction, the user must have a key that corresponds to the transaction. It works at this stage, similar to when a money transfer goes to the account owner with a certain bank account number.
The process and how to access cryptocurrency may sound complicated to ordinary people, but you can learn it slowly by understanding the concept of digital money transactions. With the increasing growth of digital activity, digital currency surely has the potential for future use. However, even though according to the rumors, cryptocurrency is considered a basic type of investment that is easy to access and provides great returns, you still have to mean the risk and money management you will put into cryptocurrency.
Always become a person who always wants to find out before being tempted by other people’s words. Stay curious and happy learning!
Written by Melisa Nirmala Dewi
References:
BitDegree. Apa Itu Cryptocurrency? [online] Tersedia dalam https://id.bitdegree.org/crypto/tutorial/apa-itu-cryptocurrency (Diakses pada 27 Mei 2021).
Coinbase. Bitcoin price. [online] Tersedia dalam https://www.coinbase.com/price/bitcoin (Diakses pada 27 Mei 2021).
CryptoCurrency Facts. How Does Cryptocurrency Work? [online] Tersedia dalam https://cryptocurrencyfacts.com/how-does-cryptocurrency-work-for-beginners/ (Diakses pada 27 Mei 2021).
