Cryptocurrency has become a popular topic in recent years, but many people still don't fully understand what it is or how it works. In this article, we will provide an overview of cryptocurrency and explain its basic principles.

Understanding cryptocurrency

Cryptocurrency is a digital or virtual form of currency that uses blockchain technology to secure and verify transactions. Unlike traditional currencies, cryptocurrency is decentralised, meaning it is not controlled by a central authority or government.

How does cryptocurrency work?

Cryptocurrency operates on a peer-to-peer network of computers that validate and record transactions using complex mathematical algorithms. These transactions are then added to a public ledger known as the blockchain, which serves as a permanent record of all cryptocurrency transactions.

Cryptocurrency uses cryptography, a method of encrypting information, to secure and protect transactions. This makes it highly resistant to fraud and counterfeiting. Imagine each transaction as a unique puzzle piece that fits perfectly into the blockchain, making it nearly impossible to alter.

Unlike the current banking system, cryptocurrency transactions do not require a third-party intermediary, such as a bank or credit card company. This eliminates additional fees and delays in processing.

Without these intermediaries, users have more control over their own funds and are able to make direct peer-to-peer transactions with anyone in the world. By using private keys and public addresses, users are able to send and receive cryptocurrency securely.

A private key is a string of letters and numbers that serves as the user's digital signature, allowing them to access their funds. This should be kept secret and never shared with anyone. A public address, on the other hand, is a unique identifier that allows others to send funds to the user. By knowing someone's public address, you can send them cryptocurrency without needing any personal information.

Examples of popular cryptocurrencies

Some of the most well-known cryptocurrencies include Bitcoin, Ether, Solana, and BNB. These cryptocurrencies have gained significant attention in recent years due to their high value and potential for investment. Cryptocurrencies can also be categorised into different types such as:

  • Stablecoins: These are cryptocurrencies designed to maintain a stable value, often pegged to a fiat currency like the US dollar. This makes them less volatile and more suitable for everyday transactions. Popular examples include $USDT by Tether and $USDC by Circle.
  • Utility tokens: These cryptocurrencies are used within a specific platform or network to access services or goods. More often than not these are cryptocurrency exchange branded tokens which allow for trading fee discounts, popular examples are $OKB from OKX, $BGB from Bitget and $CRO from Crypto.com.
  • Security tokens: These are cryptocurrencies that represent ownership of a real-world asset, like stocks or bonds. They offer investors the opportunity to invest in traditional assets using cryptocurrency.
  • Privacy coins: As the name suggests, these cryptocurrencies offer enhanced privacy and anonymity features for transactions. Examples include Monero and Zcash.
  • Meme coins: These are cryptocurrencies that have gained popularity due to internet memes and viral trends, but may not necessarily have a practical use case. Examples include Dogecoin, Shiba Inu, and the plethora that have cultivated during the present bull-run on the Solana blockchain, such as $WIF and $BODEN.

Proof of stake vs. Proof of work

While there are various types of cryptocurrencies, they all operate on one of two consensus algorithms: proof of stake (PoS) or proof of work (PoW). These algorithms determine how transactions are verified and added to the blockchain.

  • Proof of Stake: In this algorithm, validators stake a certain amount of their cryptocurrency in order to be chosen to add the next block of transactions.

The probability of being chosen is determined by the amount of cryptocurrency staked, meaning those with more stake have a greater chance of being chosen. This method is seen as more energy-efficient and sustainable compared to proof of work.

  • Proof of Work: Made popular by Bitcoin, this algorithm requires miners to solve complex mathematical problems in order to verify transactions and add them to the blockchain.

This process consumes a significant amount of energy, leading some critics to argue that it is not environmentally friendly. However, supporters argue that the security provided by proof of work makes it a necessary component of a decentralised cryptocurrency network.

Both proof of stake and proof of work have their own advantages and disadvantages, but they both serve the same purpose of securing the network and validating transactions. As cryptocurrencies continue to evolve, new consensus algorithms are being developed in an effort to address the drawbacks of existing methods.

Crypto in Australia

Cryptocurrency has gained a strong foothold in Australia, with the country being one of the early adopters of this digital currency. In 2017, Australia officially recognised cryptocurrency as a legal form of payment, making it easier for businesses to accept and use crypto. This has led to an increase in the number of merchants accepting cryptocurrency as a form of payment, making it more accessible to everyday consumers.

Moreover, Australia is home to several cryptocurrency exchanges and start-ups, making it a hub for crypto innovation and development. For example, CobWeb Pay, built by CloudTech Group, is one of the leading cryptocurrency and fiat on/off ramp services. It's perfect for beginners just learning about what cryptocurrency is and how it works because its user-interface is designed to be extremely simple and intuitive.

Final thoughts

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