Cryptocurrency Explained: What is Cryptocurrency?

A beginner’s guide to decoding what is cryptocurrency, its advantages, drawbacks, and Bitcoin - the first digital currency.

Bitcoin, the godfather of all cryptocurrency, gave an entirely new meaning to digital currencies. Many attempts at digital currencies have been made at various points in history. However, the past models failed in achieving any mass success. Bitcoin, backed by blockchain technology, became predominantly popular so much so that an entire industry of cryptocurrency has evolved.


There are more than 8000 cryptocurrencies in the market today. They have become a powerful source of investment. Crypto is also growing in popularity as a payment method. From institutional investments to salary payments - cryptocurrencies are rapidly moving towards mainstream adoption. Also, in 2021 you can buy a Starbucks coffee to Tesla car with Bitcoin.


In case if you are a beginner and wondering what is cryptocurrency, here’s the perfect guide for you to explore in 2021.


What Is Cryptocurrency?

Cryptocurrency Explained: What is Cryptocurrency?

A cryptocurrency is a digital token that can enable direct payments between any two parties without the need for an intermediary or a governing body. These digital tokens are secured through cryptography. In other words, each transaction is encrypted and decrypted in such a way that it cannot be counterfeited.


Moreover, the foundation of cryptocurrency lies in a decentralized blockchain framework. Digital currency is not issued by the government. The network architecture of cryptocurrency has pre-defined parameters for verification of transactions and generating new coins.


The combination of blockchain and cryptography enables secure peer-to-peer payments. These transactions are recorded and stored on an immutable blockchain ledger. Since it is decentralized, there is no central authority or banking system to govern and monitor transactions. Instead, the transactions are verified and added to the blockchain by the nodes present in the cryptocurrency network.


Note- Nodes are the computers or hardware equipment that runs or are a part of the cryptocurrency network.


Bitcoin: The First Cryptocurrency

Even today in 2021, Bitcoin occupies the maximum share in the cryptocurrency market. Millions of nodes run Bitcoin cryptocurrency without any form of hierarchy or centralized control. However, its network infrastructure is devised such that even without a central entity to manage and process, there leaves almost no scope for fraud in the Bitcoin blockchain.


Invented by an unknown person Satoshi Nakamoto, Bitcoin (BTC) can instantly be transferred from one person to another without any geographical boundaries. Furthermore, the transaction fee for processing transactions is almost zero.


Any transaction on a decentralized Bitcoin network is verified by the millions of nodes spread across the globe. These nodes on the bitcoin network verify Bitcoin transactions through a process known as proof of work. If maximum nodes validate the authenticity of the transaction, it is considered valid and further added to the existing blockchain.


In order to keep the network honest, rewards in the form of bitcoins are introduced. One lucky node receives a block of Bitcoins for performing honest work. The protocol ensures that through an incentivized framework, the integrity of the transaction is maintained and simultaneously new coins are generated. This process of verifying a transaction through proof of work and generating new bitcoins is known as mining. The nodes that perform the activity of mining are known as miners.


Advantages of Cryptocurrency

Cryptocurrencies have opened up new doors to a number of opportunities. It has presented us with new ways which are less time-consuming and more efficient.

  • Direct Transfers- By enabling direct transfers, even for cross-border transactions, cryptocurrencies have simplified a rather complex procedure involving multiple third parties.

  • Minimal Fee- Our present system levies heavy transaction and banking fees. Digital currency ensures the processing of a higher amount of transactions with a minimal fee.

  • Cryptographically Secure- Each transaction is cryptographically protected making it extremely difficult for attackers to hack any of them.


Disadvantages of Cryptocurrency

While digital currencies hold immense potential, they are still at a relatively early stage. This has made them vulnerable to a number of illegal activities.


  • Money Laundering- Cryptocurrency transactions are semi-anonymous. Some cryptocurrencies offer more privacy to transactional information than others. This has made them well-suited to conduct activities like money laundering and tax invasion.

  • Legal Nature- In several countries, there lacks proper regulatory framework defining the legal scope of cryptocurrencies.

  • Price Volatility- They are highly volatile by nature. Cryptocurrencies cannot be used to their optimum potential as a ‘currency’ until the issue of volatility is effectively addressed.

Buy and Sell Cryptocurrencies with XanPool

Buy and Sell Cryptocurrencies with XanPool

The use-cases of digital currencies are rapidly rising. Retail as well as institutional investors are looking for ways to invest or trade cryptocurrencies. XanPool is a cryptocurrency payment gateway solution allowing users to buy and sell several cryptocurrencies.


Moreover, XanPool provides innovative ways to exchange cryptocurrencies with fiat currencies and vice versa. It facilitates users from different countries to buy Bitcoin with their preferred local method and sell Bitcoin in exchange of their preferred local currency. Along with leading cryptocurrencies, XanPool also supports DeFi coins, stablecoins, and other coins like Litecoin, and Ripple.


Furthermore, XanPool allows users to exchange digital assets in a non-custodial manner. In other words, users remain in complete control over their funds. Prominent features of our platform while buying or selling cryptocurrencies include institutional-grade infrastructure, intuitive dashboard, instantaneous settlements, low transaction costs, among others.