By now, you have probably heard about cryptocurrencies, especially with Bitcoin being all over the news because it is reaching all-time highs. Cryptocurrencies let you buy goods and services, or trade them for profits.
Before we take a closer look at some of these cryptocurrencies and how they can help to make our day-to-day lives better, we need to understand what the term cryptocurrency means.
What are Cryptocurrencies?
A cryptocurrency or “crypto” is a digital currency that can be sued to buy goods and services but uses an online ledger with strong cryptography to secure online transactions.
The “crypto” in cryptocurrencies refers to complicated cryptography which allows for the creation and processing of digital currencies and their transactions across decentralized systems. Many companies have issued their own currencies, often called tokens, and these can be traded specifically for the goods or services that the company provides. Think of them as they were arcade tokens or casino chips. You’ll need to exchange real currency for the cryptocurrency to access the good or service.
Cryptocurrencies work using a technology called blockchain. Blockchain is a decentralized technology spread across many computers that manages and records transactions. Part of the appeal of this technology is its security.
Now that we know what a cryptocurrency is, you might be asking how many of them are out there
The short answer is: over 6700! Yes, over 6700 cryptocurrencies are traded publicly, according to CoinMarketCap.com, a market research website. Some companies even use cryptocurrencies to raise money – this is called an ICO or initial coin offering. The total value of all cryptocurrencies on March 18 2021 was almost $1.8 trillion, according to Coinmarketcap, and the total value of all bitcoins was estimated to be $1.09 trillion. You can check the updated list here.
Why are cryptocurrencies so popular today?
There are many people around the world that support cryptocurrencies for the following reasons:
- Supporters like the fact that cryptocurrency removes central banks from managing the money supply since over time these banks tend to reduce the value of money via inflation
- Supporters also like the technology behind crypto, blockchain, mainly because it’s a decentralized processing and recording system and it can be more secure than traditional payment systems.
- Some see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, presumably before they become more valuable.
What can you do with cryptocurrencies?
Low-cost money transfers
One of the most well-known uses of cryptocurrency is for sending and receiving payments at low cost and high speed. For example, a recent $99 million LTC (litecoin) transaction took only two and a half minutes to process and cost the sender only $0.40 in transaction fees. If this money transfer had gone through a financial intermediary, such as a bank, the fees would have been much, much higher and the transfer would have taken several days, or longer if this was a cross-border transaction.
The fees associated with transactions using digital currencies such as Litecoin (LTC), Stellar (XLM), or Bitcoin (BTC) make them excellent payment systems for international money transfers.
You can earn interest on Bitcoin and other cryptocurrencies with Yield Farming
Successfully trading crypto for profits requires a lot of time, experience, and skill and instead many cryptocurrency owners are holding their coins for long-term gain. There are ways to earn steady interest” on crypto though. With interest rates offered by traditional banks at all-time lows, lending your crypto to a reputable platform is certainly an option – with 10% per year being offered for highly liquid cryptocurrencies like Tether. It is important to note that this type of lending is not risk-free and it is not insured by any government bodies.
A censorship resistant way to store wealth
While you probably don’t think your bank account and assets could be frozen, the reality is that this occurs more often than people realize. All it takes is for someone to be accused of financial misconduct or making powerful enemies. When that happens, people can find themselves with little to no access to cash, even if they’ve done nothing wrong.
This is where one of the most unique and powerful cryptocurrency uses comes into play. Cryptocurrencies like Bitcoin(BTC) act as a censorship-resistant alternative store of wealth that only the individual with the private keys to the wallet has access to. Hence, no personal Bitcoin wallet can ever be frozen by authorities. Check out this article about a Bitcoin miner who refused to give up his password
Invest in early stage startups
Thanks to the emergence of digital token-based fundraising, anyone with an internet connection can become an investor in an early-stage tech startup, while at the same time providing the new startup with much-needed capital.
IPOs and ICOs are a form of fundraising that provides startups with the opportunity to raise capital by selling newly created digital tokens to early backers of the project in exchange for established cryptocurrencies such as Bitcoin or Etherium. In the past, these deals would have been only available to experienced venture capitalists, but now with cryptocurrencies, everyone can invest in a startup they believe in.
Make private transactions
There are privacy-centric currencies out there, such as Monero (XMR), Zcash (ZEC) that enable users to make anonymous financial transactions.
This means that individuals can make money transfers without having to explain to the bank why they are sending a large sum of money, what the sources of the funds are and who they are sending it to, which can delay the transaction and involve unnecessarily bureaucratic processes.
Cryptocurrencies are changing the way we make transactions in our day-to-day lives. They help with revolutionizing systems allowing for faster methods of payment with almost no transaction fees. Although cryptocurrencies have been receiving criticism from banks and investors, they seem to offer hope and escape from an outdated over-bureaucratic system.