Every other day, cryptocurrency makes it into the headlines. Its increasing popularity has made it a lot easier to turn eyeballs in its way. This rising demand and also its acceptance in a lot of countries have resulted in cryptocurrencies becoming a part of investments. Though investing in cryptocurrencies might sound tempting and exciting, it is critical to know what exactly is a cryptocurrency and how does it work.

If the whole concept of cryptocurrency is new for you then you are at the right place. Read on to have a fair idea about the cryptocurrency market.

What Is Cryptocurrency?

Let's start with the very basic question that might be the subject of interest for many. So, what exactly is cryptocurrency? A cryptocurrency is a form of currency. The difference between this currency and that of the currency which we employ for transactions daily is that the former is digital and decentralized. What has led to cryptocurrencies gaining attention from everywhere around is the fact that they can be stored and witness a growth in value. Now, this might come as a surprise for many – well, there are not one, not two, not tens but thousands of cryptocurrencies. Undoubtedly, the most popular of them all is Bitcoin. Some other cryptocurrencies that have gained importance over a period of time include Ethereum, XRP, and Bitcoin Cash. What sets each of these apart from the rest is in the manner in which they are used and their characteristics. There are some that are used instead of cash while some are used for private, direct transactions.

Those who own cryptocurrencies have them safely stored in a digital wallet. Since this currency is digital, it is quite obvious that there isn't any physical coin or bill. These can then be used to buy or sell through an online exchange. Now, here is the catch – your wallet need not be just online. It could be stored offline on a hardware device similar to a USB drive as well.

When cryptocurrencies are used for transactions, needless to say, these transactions have to be recorded. They are recorded on a decentralized ledger, called a blockchain. Blockchain is a public database of transactions. Since this is public, anyone can join and participate in it. However, that does not mean your security is at stake. This is because individual transactions are secured by cryptography. Cryptography is a process aimed at preventing fraud. Thus, the transactions involving cryptocurrencies are safe. However, that doesn't mean they are safe to true sense. Since there isn't any regulation; the protection that other standard currencies like the dollar, rupee, pound, etc. enjoy is missing here.

Regulation

The fact that the cryptocurrency market is not regulated has both – brighter side and a darker side. For those willing to invest massively without having to deal with any obstacle whatsoever, it is an advantage. Those unwilling to take risks need to extra cautious of not investing money that they aren't willing to lose. A nicely laid out plan as to how should cryptocurrencies be classified and a clear regulation would make it easy to predict the future.

Uses of Cryptocurrencies

Now that we have a fair idea as to what exactly are cryptocurrencies, it makes sense to talk about the uses and applications of the same.

• Though cryptocurrencies can be used to make purchases, what is worth noting is that they are not yet widely accepted among retailers and other businesses.
• Some look at cryptocurrencies from an investment point of view. People invest in them hoping that the future would see an increase in value. However, what needs to be understood here is that the demand cycle is just unpredictable. So, assuming that the future would give a higher return on investment might sound vague for many.

What is the Future of Cryptocurrency?

With an exponential increase in the number of people becoming aware of cryptocurrencies, it is evident that the future would see huge investments in the same. That said, it is always better to have a fair idea pertaining to the volatility and risk factors of cryptocurrency before investing.