Cryptocurrency has been gaining more and more importance since the financial crisis in 2008. While some trust digital money less, there are more and more who see crypto currency as a promising investment and financial investment. But what exactly is cryptocurrency and how does digital money actually work?
Cryptocurrency – a brief definition
The term cryptocurrency, i.e. currency in the form of digital money, is derived from cryptography. The function of the latter is to prevent transactions being manipulated or money being spent twice.
Although there is already digital money in Germany in the form of credit cards, checks, bank transfers, etc., it is not considered legal tender. Instead, cash must be paid into a bank account or a loan must be made.
Cryptocurrencies, on the other hand, allow payment without the involvement of banks and credit institutions, although at the same time there is still a demand for cash. They can be induced by anyone around the world through the use of cryptographic computing processes.
Types of cryptocurrency
Cryptocurrency is usually divided into two categories, Bitcoin on the one hand and over 2000 different alternative coins / altcoins worldwide on the other. The Bitcoin always acts as the key currency on which the growth in value of the Altcoins is strongly oriented.
Put simply, cryptocurrency is divided into so-called tokens (coins or digital coins). These can be broken down much further, depending on the currency, similar to the division of euros into cents. For example, a Bitcoin can consist of 100 million parts. In this way, smaller amounts can also be invested in Bitcoins. Finally, a bitcoin with a value of 5,000 euros can be split up so that 0.01 bitcoin can be bought for 50 euros.
What often sounds very complicated is not that difficult to implement in practice. As a rule, as an investor, you hardly need to deal with technical fundamentals, blockchain and cryptography. Because even if this type of investment is still more complicated than regular financial investments, cryptocurrency, on the other hand, can score with comparatively higher potential returns for precisely this reason.
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Gendernote: I have used the masculine form for ease of reading. Therefore, unless an explicit distinction is made, it always refers to women, diverse as well as men, and people of all origins and nations. Read more
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