How Does Cryptocurrency Even Work, and What are its Benefits

Have you ever watched something rise in popularity seemingly overnight and wondered how it works or why it’s even a big deal? That is what cryptocurrency is for a lot of people. It can be a divisive topic.

Many people, especially those used to traditional assets, might see crypto as volatile, unpredictable, and unstable. The problem is, those are usually the people who don’t understand it. 

I’m here to tell you that not only should you take the time to learn what cryptocurrency is, but that it has unique investment opportunities. Let’s digest this a little bit. 

What are Cryptocurrencies, and How Do They Work?

When most people think of crypto, they immediately think of Bitcoin, but there is so much more to it than that. In general, cryptocurrencies are digital or virtual tokens that use specific technology (cryptography) to secure their transactions and control the creation of new units. 

The biggest thing you need to understand is that cryptocurrencies are decentralized, meaning they are not subject to government or financial institution control. No Federal Reserve or a central bank is required to facilitate the flow of funds. 

Bitcoin and other cryptocurrencies utilize blockchain technology to keep track of transactions. A blockchain is a distributed database that allows for secure, transparent, anonymous, tamper-proof transactions. Think of it like a bank ledger. Everything is recorded on that ledger as an account of each transaction. 

This technology is used in cryptocurrencies like bitcoin to create a digital ledger of all transactions. This makes it difficult for hackers to steal or counterfeit bitcoins. 

So with this information, why is this a recipe for its popularity?

The Benefits of Investing in Cryptocurrencies?

Cryptocurrency may be one of the most transformative inventions since the internet. At first, it’s a novelty, then one day, it’s adopted in mass, and you can’t imagine your life without it. The crypto space is more than just a way to make a quick buck—it can also have utility (a real-world purpose).

For example, because of cryptocurrency’s decentralized nature, you own your own assets without the risk of control from a financial institution. This makes them an attractive investment option for those opposed to entire markets being changed because of the decision of an entity like the Fed. 

Cryptocurrencies are also associated with anonymity. Instead of requiring a human to be able to access your account to some degree, you become the manager of your own bank to assets that you own. This is an appealing feature for those who want to keep their financial activities private.

One final benefit (among many still) is that people who invest now may still be early enough to benefit from mass adoption. This is because, as time goes on, more use cases are being created for cryptocurrency, both online and in the real world. Even some banks and stores are allowing transactions to be done using them. Getting into the market now could lead to multi-generational opportunities in the future.

Final Thoughts

This is not financial advice, and you should understand that crypto has risks, like any other type of investment. But I have a saying I like to stand by, don’t bet against innovation. New things can seem scary. Especially when you look at the crypto market, everything is down by something like 70%.

Does that mean you should ignore it or wait for it to turn around? No, because you might miss the opportunity. You don’t have to go all in, but getting involved little by little could help you learn what you need to know when the market turns around. As a starting point, Coinbase is an easy-to-use platform that’s beginner friendly.