Ground Report | New Delhi: How do cryptocurrency work?; Cryptocurrency, also called virtual currency or cryptocurrency, is digital money. That means there are no physical coins or bills – everything is online. You can transfer a cryptocurrency to someone on the internet without an intermediary, such as a bank. The best-known cryptocurrencies are Bitcoin and Ether, but new crypto-currencies continue to be created.
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People could use cryptocurrencies to make quick payments and to avoid transaction fees. Some people might acquire cryptocurrency as an investment, hoping that it will increase in value. Cryptocurrencies can be purchased with a credit card or, in some cases, through a process called “mining.” Cryptocurrencies are stored in a wallet or digital wallet, either online, on your computer, or on another physical medium.
How do cryptocurrency work
Cryptocurrencies have several differentiating characteristics with respect to traditional systems: they are not regulated or controlled by any institution and they do not require intermediaries in transactions. A decentralized database, blockchain, or shared accounting record is used to control these transactions.
In line with regulation, cryptocurrencies are not considered a means of payment, they do not have the backing of a central bank or other public authorities and they are not covered by customer protection mechanisms such as the Deposit Guarantee Fund or the Fund Investor Guarantee.
Regarding the operation of these digital currencies, it is very important to remember that once the transaction with cryptocurrencies is carried out, that is, when the digital asset is bought or sold, it is not possible to cancel the operation because the blockchain is a record that does not allow deleting data. To “reverse” a transaction it is necessary to execute the opposite.
Since these coins are not physically available, you have to resort to a cryptocurrency digital wallet service, which is not regulated to store them. (How do cryptocurrency work)
How many types of digital wallets are there?
- A digital purse or wallet is actually a software or application where it is possible to store, send and receive cryptocurrencies.
- The truth is that, unlike a physical money purse, what is really stored in wallets or digital purses are the keys that give us ownership and right over cryptocurrencies, and allow us to operate with them.
- In other words, it is enough to know the keys to be able to transfer the cryptocurrencies, and the loss or theft of the keys can mean the loss of the cryptocurrencies, without the possibility of recovering them.
- There are two types of purses: there are hot and cold ones.
- The difference between the two is that the former are connected to the internet, and the latter is not.
- Thus, within the hot wallets we find web wallets, mobile wallets, and desktop wallets, the latter only if the computer is connected to the internet.
On the contrary, within cold wallets, there are hardware wallets and paper wallets, which is simply the printing of the private key on paper. These custodial services are not regulated or supervised.