What makes cryptocurrencies different from traditional currencies?

What makes cryptocurrencies different from traditional currencies?

Where are the cryptocurrencies?

Cryptocurrencies only exist on the Blockchain, so they are not a physical asset or linked to a traditional bank account. They are created from a chain of blocks and are stored in purses or wallets that can be physical or virtual.

Cryptocurrencies use cryptography to be created and to record all transactions securely. The money is transferred from one digital purse or wallet to another, registered in a common, public and decentralized ledger.

These wallets can be nominal or anonymous, one of the main advantages for cybersecurity and the prevention of censorship, but also one of the main risks and threats against possible losses, theft, or even money laundering.

We recommend this article if you want to know the most important tips to have a cyber-safe life.
What is the value of cryptocurrencies?

The value of cryptocurrencies depends on the project that supports them, their adoption and their use. The more serious the project, the more people and organizations use and accept it, the higher its value and attractiveness in the market.

Due to their high volatility compared to traditional or fiat currencies, such as the euro or the dollar, they are not yet widely accepted as a common means of payment. Some of the most accepted currencies are becoming less volatile, which facilitates their progressive adoption.

Before buying or investing in cryptocurrencies, we recommend that you inform yourself and train in depth. Like any other investment, there are multiple risks that you should know in advance.

What makes cryptocurrencies different from traditional currencies?

The main difference between cryptocurrencies compared to traditional currencies is that, in general, they are a type of decentralized currency since they are free from the influence of governments and the traditional market.

Therefore, cryptocurrencies are controlled by the peer-to-peer (peer-to-peer) protocol through a database of blockchain transactions (a huge public ledger).

An important characteristic of most cryptocurrencies is that they have a unit limit, unlike traditional money that is unlimited and inflationary, losing value over time. For example, there will only be 21 million Bitcoin. Consequently, there can only be a limited number of units in circulation. This limitation produces “scarcity” of this virtual payment method, which gives it added value.

Other currencies, besides having a limit, are even programmed to be “burned” or “destroyed” by whoever created them or the company that manages them. This causes them to be deflationary, which encourages people or investors who own them to prefer to keep them, given the potential increase in their valuation over time. This is the case with Ethereum 2.0.

An extended analogy is that cryptocurrencies could in the physical world resemble metals and gemstones. The extraction of these types of precious materials is reduced as they are depleted.

For this reason, Bitcoin has been associated with the concept of “digital gold,” being considered by multiple investors and companies as a “store of value.” In turn, Ethereum has been associated with the “digital diamond” as there will be fewer and fewer in circulation, thus becoming a scarcer asset.

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Characteristics of cryptocurrencies

There are several unique characteristics of cryptocurrencies that make them extremely interesting and useful in multiple use cases:

They use cryptography: it is a method that allows you to create an encrypted code to hide information. Cryptography applies two main elements concerning cryptocurrencies: hash functions (which verify the integrity of the data and encode the transaction information in a unidirectional way) and digital signatures (allow transactions to be signed by encrypting the information so that none of this information is disclosed).
They use blockchain technology: As already mentioned, Blockchain is a public ledger that makes it easy to track transactions. This technology creates a secure record, which cannot be altered without the majority of the rest of the network, making it more secure than any other traditional accounting record. As more and more millions of people use them, the system becomes more and more secure.
They use block mining: Cryptocurrency mining consists of assigning new transaction records to the Blockchain in the form of blocks. In this process, new cryptocurrencies are produced that are added to the total of them in circulation.

Where are the cryptocurrencies?

Cryptocurrencies only exist on the Blockchain, so they are not a physical tax or linked to a traditional bank account. They are created from a chain of blocks and are stored in purses or wallets that can be physical or virtual.

Cryptocurrencies use cryptography to be created and to record all transactions securely. The money is transferred from one digital purse or wallet to another, registered in a common, public and decentralized ledger.

These wallets can be nominal or anonymous, one of the main advantages for cybersecurity and the prevention of censorship, but also one of the main risks and threats against possible losses, theft, or even money laundering.

We recommend this article if you want to know the most important tips to have a cyber-safe life.

What is the value of cryptocurrencies?

The value of cryptocurrencies depends on the project that supports them, their adoption and their use. The more serious the project, the more people and organizations use and accept it, the higher its value and attractiveness in the market.

Due to their high volatility compared to traditional or fiat currencies, such as the euro or the dollar, they are not yet widely accepted as a common means of payment. Some of the most accepted currencies are becoming less volatile, which facilitates their progressive adoption.

Before buying or investing in cryptocurrencies, we recommend that you inform yourself and train in depth. Like any other investment, there are multiple risks that you should know in advance.

What makes cryptocurrencies different from traditional currencies?

The main difference between cryptocurrencies compared to traditional currencies is that, in general, they are a type of decentralized currency since they are free from the influence of governments and the traditional market.

Therefore, cryptocurrencies are controlled by the peer-to-peer (peer-to-peer) protocol through a database of blockchain transactions (a huge public ledger).

An important characteristic of most cryptocurrencies is that they have a unit limit, unlike traditional money that is unlimited and inflationary, losing value over time. For example, there will only be 21 million Bitcoin. Consequently, there can only be a limited number of units in circulation. This limitation produces “scarcity” of this virtual payment method, which gives it added value.

Other currencies, besides having a limit, are even programmed to be “burned” or “destroyed” by whoever created them or the company that manages them. This causes them to be deflationary, which encourages people or investors who own them to prefer to keep them, given the potential increase in their valuation over time. This is the case with Ethereum 2.0.

An extended analogy is that cryptocurrencies could in the physical world resemble metals and gemstones. The extraction of these types of precious materials is reduced as they are depleted.

For this reason, Bitcoin has been associated with the concept of “digital gold,” being considered by multiple investors and companies as a “store of value.” In turn, Ethereum has been associated with the “digital diamond” as there will be fewer and fewer in circulation, thus becoming a scarcer asset.

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