What is Cryptocurrency? Definition, Types, Benefits, and Usage

Only around two decades ago, the world’s finances used to revolve around fiat currency. Each country used to follow international rules set by central banks to manage the cash flow.

The current economy, however, has changed a lot.

Most of the credit goes to cryptocurrency, which is a virtual currency and isn’t bound to any central rules or regulations. The concept of crypto has been around for a while, but not many people understand what it actually is.

If you’re one of these people, your confusion is about to get resolved. In this article, I am going to discuss what is cryptocurrency comprehensively. I’ll go over its types, benefits, and usage details to help you learn it properly.

What is Cryptocurrency?

Unlike traditional currencies issued by governments (fiat money), cryptocurrencies are typically not controlled by any central authority, such as a bank or government. All the crypto owners around the world control it according to the rules of cryptography.

Crypto works on a technology called blockchain. It is one of the most secure and transparent technologies, and anyone can view the transaction history recorded on it.

Since the transaction history is transparent, crypto is completely secure, and there’s no fraud in it.

This cryptographic principle known as “proof-of-work” ensures that altering past transactions would require more computing power than what the entire honest network possesses combined with successful attacks economically unfeasible.

Why Cryptocurrency is Very Secure?

Cryptocurrency is very secure since it works on blockchain technology. Blockchain works as a digital ledger that contains all the information about crypto transactions. Anyone from around the world can take a look at this ledger and see how the transactions were made.

What makes blockchain scam-free is its data storage method. It stores data in the form of blocks, and each block has a unique number called a hash. Each block also contains ‘previous hash’, which indicates the hash of the previous block.

So, to make a scam in crypto, a person would have to make changes to the hash number. Changing it will be impossible since it will require altering the numbers of the whole chain, which requires a computing power that’s nearly impossible to achieve.

Types Of Cryptocurrency

There are many types of cryptocurrencies currently being circulated in the market. However, some of these types are very popular and have great value as well.

1. Payment Coins

Payment coins are a type of crypto that is primarily used as digital money. They are utilized to transfer value from one person to another via decentralized blockchain technology.

People can use these coins to purchase anything from around the world. They can also liquidate the coins into fiat currency and use it according to their needs.

Payment Coins Examples:

• Bitcoin (BTC)
• Litecoin (LTC)
• Bitcoin Cash (BCH)

2. Stablecoins

Another popular type of crypto is stablecoins. They are designed to maintain a stable value and are usually attached to fiat currencies like the US dollar.

Stablecoins are mainly used to enjoy the benefits of crypto, such as fast transactions without any major volatility.

Stablecoins Examples:

• Tether (USDT)
• USD Coin (USDC)
• FRAX

3. Utility Tokens

Utility tokens are mainly designed to allow people to utilize different services within a blockchain system. They are used to build several other crypto projects without requiring a separate blockchain.

Companies that have unique crypto ideas but don’t have the resources to create a blockchain of their own use these tokens to build their crypto project.

Utility Tokens Examples:

• Ethereum (ETH)
• BNB
• Chainlink (LINK)

4. NFTs

NFTs (Non-Fungible Tokens) are another popular type of cryptocurrency being utilized in different sectors. They represent a digital ownership certificate, which makes ownership and trading of assets easier.

These tokens can be attached to assets like art, collectibles, virtual real estate, etc.

NFTs Examples:

• Tezos-based NFTs
• Solana-based NFTs
• Ethereum-based NFTs

5. Memecoin

Memecoin is a trending type of cryptocurrency that was actually started as an Internet joke. However, they gained significant value over time and are now a fun way to engage within the crypto community.

Memecoin Examples:

• Dogecoin (DOGE)
• Shibu Inu (SHIB)
• Kishu Inu (KISHU)

Benefits of Cryptocurrency

Cryptocurrency, just like every other modern fintech, offers a lot of benefits to people. I’ve discussed the major ones below:

1. Decentralization:

One of the biggest benefits of crypto is that it is completely decentralized. It isn’t under the governance of any single person or entity. In the normal world, countries and banks usually regulate the fiat currency.

They can make different rules and regulations about it and make changes whenever they want. But that’s not the case with crypto. This digital currency is decentralized, and no one can make rules or changes to it.

2. Safe & Secure:

Crypto is the safest form of currency and assets in general in the entire history. It works on blockchain which is a transparent and secure technology. It consists on a chain of blocks containing different numbers and codes.

These codes are impossible to change since more and more blocks keep on getting added within the chain. It makes crypto both a transparent and secure form of currency.

3. Quick And Secure Transactions:

Transactions of cryptocurrencies are quick and secure. They take place in the form of decentralized contracts, which require the use of a specific code called the “private key”. Unless both parties use their private keys, the transaction cannot be completed.

4. Transparent Records:

The ownership and transaction data of cryptocurrency are completely transparent. Each and every transaction is recorded on a digital ledger that is publicly visible.

Every person in the world can access this ledger and take a look at crypto ownership. In simple words, I can see how many coins you own, and you can see how many crypto coins I own. Sounds cool, right?

5. Ease Of Use:

Using crypto is extremely easy. You usually store it in a digital wallet and can make transactions directly through it.

Even if you want to use the currency for trade, you can do it within a matter of seconds using any crypto exchange platform.

6. Secure Asset Ownership:

NFTs offer secure asset ownership. In the normal world, we own assets via legal documentation that can be altered and changed easily.

On the other hand, certification of asset ownership via NFTs takes place on blockchain. Since no one can make any changes in blockchain, the asset ownership certificates are extremely secure and authentic.

7. Global Access:

Cryptocurrency can be accessed globally. Except some certain countries, such as China and Russia, this digital currency is available to be utilized all around the world.

It makes secure international transactions possible. Besides that, since its transaction fee is low, making international payments is possible without losing a lot of money.

8. Inflation Protection:

Inflation is a huge problem of the fiat currency. Countries print a lot of money without any solid backup which ends up in inflation. But that’s not the case with crypto.

Most currencies (such as Bitcoin) has a limited supply. It means no one can mine a lot of coins and cause inflation in the market. 

Potential Uses of Cryptocurrency

Crypto is being used for a number of different reasons. I’ve discussed the details of the major uses below.

1. Peer-To-Peer Payments:

One of the biggest use of crypto is peer-to-peer transactions. People are using this currency to transfer and receive money from one another in a secure way. It is being used as a digital cash to purchase anything you want from places that accept crypto payments.

Since the transaction fee on crypto is very low, it makes it a suitable option for sharing large amount of money with each other.

2. Investment & Trading: 

Another major use of crypto is investment and trading. Unlike real money, this digital money has become a huge investment and trading asset for people. The main reason for this is the changing value of crypto. 

People buy this currency at a low price and then trade it for a profit when the price goes up later on. Some people even have made crypto trading a proper career. 

3. Lending & Borrowing: 

Cryptocurrency has entirely changed the way people deal with lending and borrowing money. Unlike dealing with banks, people can find investors quickly who are ready to give a loan to whoever needs it.

In return, they earn a specific amount of interest. Lending and borrowing money in this way is a lot quicker and safer compared to real money. 

4. Smart Contracts: 

Smart contracts work just like real-world contracts but are a lot secure. These are self-executing contracts, and the terms and regulations are directly written within the codes.

In this way, the terms become secure and no one can alter them. Different industries like insurance companies are using crypto for this purpose. 

5. Gaming:

You might be surprised to know that crypto is also being utilized within gaming. People are using it as an in-game currency to purchase different items.

Since it’s a secure and convenient form of currency, the user experience of gamers is always pretty positive. Besides this, some games offer people a chance to win crypto by completing challenges as well. 

6. Assets Tokenization: 

Asset tokenization means attaching physical assets, such as real estate, to crypto coins in order to make them more secure and easily tradable.

Many companies have started these projects in the crypto world. People can now attach physical assets to crypto tokens and then trade them in a secure way easily. 

7. Avoiding Censorship: 

In many countries, people have to face censorship regulations when it comes to making transactions. Crypto helps deal with this issue properly.

There are several coins available in the market that offer private transactions. The transactions are hidden from the governments and banks, and people don’t have to worry about any censorship regulations. 

8. Micropayments:

Many people think that cryptocurrency is only used for making big purchases. But that’s not true. It is being used for micropayments as well.

Crypto owners can use this digital currency and make small payments for things like media subscriptions, tipping content creators, etc.

Final Words

Cryptocurrency is a digital currency that works on blockchain technology. It is the most secure form of currency, and it’s almost impossible to make changes to it. There are different types of this currency, and each one of them is utilized for different purposes. 

The main specialty of crypto lies in its being transparent and extremely convenient to use. That’s precisely why people are using it to make transactions, trade, and write smart contracts. 

People Also Ask

1. What is cryptocurrency with an example? 

Cryptocurrency is a form of digital currency that works on the blockchain technology. One of its biggest example is Bitcoin. 

2. Is cryptocurrency safe? 

Yes, crypto is extremely safe. The whole credit goes to the blockchain technology that is is very secure and no one can make changes in it. 

3. How to invest in cryptocurrency? 

Investing in crypto is easy. Simply buy a specific crypto from a crypto exchange platform. Then, start trading the crypto in order to make a profit through the investment. 

4. What cryptocurrency to invest in? 

Crypto is a volatile market, and you should consult with a professional finance expert before making an investment decision.