In the past few years, the number of people who use cryptocurrency has grown by a huge amount. What used to be hidden away in dark corners of the internet is now widely known. In its short history so far, it has gone public, broken market records, and crashed.
During the pandemic, this digital currency was used a lot more than before. Bitcoin went from being worth $8,000 in November 2019 to being worth more than $67,500 in November 2021. The FCA says that crypto’s popularity also grew: by June 2021, 2,3 million Britons had invested in crypto, which is a 20% increase from the year before.
After reaching those dizzying heights, though, cryptocurrency fell just as quickly as it had risen. In the spring of 2022, $2 trillion was wiped out around the world.
Even so, cryptocurrencies, of which there are many, aren’t going away any time soon. WisdomTree did some research and found that investors, especially younger ones, are sticking with digital coins, at least for now. More and more people are also able to buy things online with crypto.
Since cryptocurrency is still popular, it is still a good idea to know at least the basics about it. Here are some facts about digital payments, how they work, and how you can use them in the future.
What is cryptocurrency?
Cryptocurrency is a type of digital currency that uses cryptography to keep it safe.
Bitcoin was the first cryptocurrency and is still the most well-known one to this day. It was set up by Satoshi Nakamoto between the end of 2008 and the beginning of 2009. He wanted to make something called a “peer-to-peer electronic cash system,” which he did. This means that there isn’t a single server in charge of everything. It’s like how people share files with each other on networks.
How does it work?
A network of peers is what makes a cryptocurrency work. These peers keep track of the history of every transaction and the balance of every account. Every person who uses a cryptocurrency like Bitcoin must keep track of what’s going on using something called blockchain. It is a public log of all the transactions that take place on the network.
When a transfer happens, the sender and recipient’s keys, or wallet addresses, along with the amount to be sent are put into a file. But before it can be sent, the transaction must be confirmed by a minor, who then marks it as legal and sends it into the network.
When a transaction happens, the information is sent to the network almost right away so that everyone can see it. It takes time to get the minors to sign off on the deal. Once the transaction is confirmed, it can’t be changed or faked. But while the transaction is still in progress, it can be faked. This is why the minor’s confirmation is so important. The transaction is added to the blockchain in this way.
Really, anyone can be a minor. But to stop everyone from trying to be a minor, which could lead to fake transactions and break the whole system, the founder made it hard to become one. As a side note, you get paid for each cryptologic puzzle you solve (which confirms a transaction).
Setting up cryptocurrency payments
Before you begin accepting cryptocurrency payments, you need to be set up to do so. There are two different ways to do this. You can either set it up on your own without using a third-party processor (the complicated way). Or you can sign up with a payment provider that does all the hard work of converting the currency for you (the more expensive route).
If you plan to set up payment yourself, you will need to manually setup a wallet and exchange accounts to receive payments. Depending on the type of wallet you choose, that will dictate the type of currency you can accept. The hard part then is programming everything needed to implement the payment: addresses, transfers, security and interface to make the payment.
If you don’t feel comfortable doing the programming required for setting up the payment, you can sign up with a payment provider. These companies do all the work for you. But be prepared for service charges. Some companies charge per transaction while others charge when you cash out your coins into your bank.
Properties of a transaction
There are five main properties of cryptocurrency payments that have made companies like Bitcoin so appealing (or not appealing depending on your take):
- Irreversible: As we’ve already talked about, once a minor agrees to a transaction, it’s set in stone and can’t be changed. No one, not even the bank or the person who started the transaction, can change it. The good thing about this is that it can’t be faked and used for something else. The bad thing is that you can’t get your money back if you send it to the wrong person.
- Pseudonymous: In the world of cryptocurrencies, everyone on the network can see all transactions, but no one knows who you really are. Transactions are made using strings of characters that are called addresses.
- Transactions happen quickly because they can happen anywhere, at any time, and to anyone in the world. They are sent into the network almost right away, and it only takes a few minutes for them to be confirmed.
- Secure: Since cryptocurrency is made with a cryptographic system, only you can see the key you need to make a transaction. Your key is made of a chain that is almost impossible to break.
- You don’t need permission: The currency can be used by anyone. No one has to give you permission to join or send transactions, and nobody can stop you.