Cryptocurrency: Definition, Characteristics, Functions, Types, and Strengths and Weaknesses

Since 2013, cryptocurrencies have attracted the attention of the global community. This is because many media outlets have started covering this digital currency. The existence of cryptocurrency certainly offers many advantages and disadvantages from many sides.

Cryptocurrency is a term that has been heard a lot in recent years. But do you know what cryptocurrency is? Let's find out more.

What is Cryptocurrency?

Simply put, cryptocurrency is digital currency. This currency is not available in physical form such as coins or cash used around the world.

In cryptocurrency, everything is completely virtual. However, this digital currency has a fairly high value.

It can also be stored in a digital wallet on a smartphone or other computing device. Apart from that, cryptocurrency holders can also use digital currencies for buying and selling transactions.

Cryptocurrency Characteristics

Meanwhile, BitDegree explains the importance of cryptocurrency in terms of its characteristics and uses as follows:

• Digital, where cryptocurrency is defined as a digital currency, meaning that it only applies to computers. Cryptocurrency does not exist in the physical form we are used to

• Peer-to-peer, explaining that cryptocurrencies are used for person-to-person online transactions

• Global, because cryptocurrencies are similar in every country, transactions can be carried out freely between countries around the world without being affected by exchange rates.

• Encrypted, each user must have his own code to trade cryptocurrency. While a transaction is in progress, the user cannot see who made the transaction. In addition, real names do not appear on every cryptocurrency store. Also, there are no rules about who can use cryptocurrency and what it can be used for.

• Decentralized, usually always involves a party that intermediaries for each transaction, for example a bank. However, there are no such banks or parties in cryptocurrencies. Everyone is responsible for their own money.

• Truthless, when you use cryptocurrency, you don't need to trust anyone in the system. From the explanation above, it can be explained that cryptocurrency is a digital currency that can be used for transactions between users without involving third parties. Apart from using cryptocurrency as a transaction tool, many users also use cryptocurrency as an investment tool.

Cryptocurrency Functions

1. Buying goods or services

Currently, many shops are starting to use cryptocurrency as a means of payment, including two well-known companies such as Overstock and Newegg.

You can also use cryptocurrencies in many restaurants, airlines, hotels, apps and bars. Quoting Cointelegraph, there are also universities that have also adopted cryptocurrency. However, most new businesses accept bitcoins.

2. Investment

Another cryptocurrency function is investing. At the start of the cryptocurrency's popularity, its price continued to increase sharply. It's no wonder that many people are "suddenly rich" after investing in cryptocurrencies.

Cryptocurrencies have more or less the same principles as economic principles, ie. prices go up when there is a lot of demand. The more people invest in cryptocurrencies, the higher the price. But recently, the rise in the price of this digital currency has not been as strong as in previous years. This is probably because investing in cryptocurrencies is a high risk category.

3.Mining

Mining or extraction is important in cryptocurrency. Basically, cryptocurrency users gain validation by solving complex cryptographic puzzles and storing them on the blockchain. This puzzle can be solved by mining. The higher the user's computing power, the more likely he is to be able to solve it. If you manage to solve the puzzle, you will be rewarded with a transaction fee.

Types of Cryptocurrencies

It is known that there are more than 2.200 types of cryptocurrencies that are publicly traded. This shows that there are so many cryptocurrencies that have earned the public's trust. The following types of cryptocurrencies are commonly traded:

1. Bitcoin

Bitcoin is the first type of cryptocurrency that is still very popular today. This type of cryptocurrency first appeared in 2009 by Satoshi Nakamoto. No one knows the origin of the mention.

As of November 2019, more than 18 million bitcoins were traded with a total market value of around $146 billion. Quoting Investopedia, so far 68% of cryptocurrency is bitcoin.

2. Litecoin

Litecoin is a type of cryptocurrency that existed at the dawn of digital currency adoption. This type of cryptocurrency emerged in 2011 as a peer-to-peer (P2P) digital currency that creates new blocks to form blockchains more quickly. Therefore, Litecoin allows users to make transactions faster without the need for a powerful computing system.

3. Dogecoin

Dogecoin is a derivative of Litecoin which appeared in December 2013. As the name suggests, Dogecoin is a cryptocurrency with a Shiba Inu dog mascot. This type is known as the most friendly cryptocurrency because the community always does charity, donations and other positive activities. Dogecoin has a much lower value than Bitcoin. So don't be surprised if this type of cryptocurrency is commonly used for gifts, small transactions and tips.

4. BitcoinCash

Launched in August 2017, it is already one of the top five cryptocurrencies. This type was also introduced because some Bitcoin users disagreed with the rules being implemented. This group of users split up and formed their own digital currency called BitcoinCash. The group also made various improvisations that they thought were better than the first cryptocurrency.

5. Feathercoin

It is a type of open source cryptocurrency. This type was created in April 2013 by Peter Bushnell, an IT officer at Brasenose College, University of Oxford. This feather coin is similar to Litecoin and is licensed under the MIT/X11 license.

Cryptocurrency Pros and Cons

Advantages

• Universal

The whole world can use cryptocurrencies. However, not everyone meets the requirements to register as a bank customer. Therefore, cryptocurrency is considered universal because there are no requirements to become a user.

• Fast

Payment transactions with cryptocurrencies are quite fast compared to bank transactions. International bank transfers can usually take more than a day.

At the same time, trading bitcoins only takes a few minutes to an hour.

• Transparency

Every cryptocurrency user can see all transactions made. But of course you don't know who made the transaction, because it's just an anonymous number.

• Personal control

Each user is responsible for their own money.

Deficiency

• A loophole for crime

No one knows who is behind a cryptocurrency code. That is why many people use cryptocurrencies for criminal purposes. You can trade legal or illegal goods with this digital currency without being tracked.

• Once forgot the password, all the money can be lost

Since cryptocurrencies use a password system without anyone checking them, if you forget your password, you risk losing all the funds in your account.

• Many still consider it illegal

Many countries still consider cryptocurrencies illegal and illegal for buying and selling transactions in their country.

Thus your explanation of what cryptocurrency is, starting from the definition, types, to the advantages and disadvantages. Hopefully it will be your consideration for choosing this currency.