Learn How Cryptocurrency Works

Learn How Cryptocurrency Works

By the end of April 2021, the cryptocurrency market has developed its worth to upto two trillion dollars. If you are a newbie and haven’t been following the dynamics of the digital currency market, it can be a little challenging to jump in at this point and understand its mechanism within a day.

There is nothing to worry about though because everything takes time. However, today we will be discussing the major basics of cryptocurrency to get you going. In the initial stages of stepping foot in the market, it may look like the information is a lot to take in altogether. However, it is important to stay patient, gather as much information from reliable sources and then step a second foot with confidence.

Below we explain the mechanism of cryptocurrency in few simple steps, covering questions of “what is cryptocurrency?” and “how does it work?”

What is Cryptocurrency?

Cryptocurrency can be thought of as an asset that exists in the digital form. When a person buys cryptocurrency, they are basically buying or creating an asset for themselves. This may be a whole asset or a part of it, depending on the cash invested.

Once an asset is bought from a credit card and a digital wallet for cryptocurrency is created, the money or asset can then be exchanged to buy goods. Services and goods can be bought or exchanged through your digital wallet.

Let’s put it into an easy example, shall we? Consider the example of a casino and think of your assets as the chips you buy there. At a casino, people first exchange their money to buy chips then use these chips to play games. When put this example into a digital setting, cryptocurrencies are the chip you buy and the goods and services you purchase translate to the games you play at a casino or even those gaming stations in malls. They all follow a similar mechanism with a difference of setting and the fact that cryptocurrency business is all digital and requires no obligation to be physically present at the service provider’s location.

How Does Cryptocurrency Work?

If you are wondering how to buy and sell ethereum in Pakistan, or how different cryptocurrencies work, here is an easy answer. 

In bitcoin, ethereum and other common cryptocurrencies, blockchain verifies the transactions that are made for currency exchange. The transactions through blockchain are not centralized, making it an open network. The decentralization in cryptocurrency makes transaction management and recording system spread out among many computers. Due to the dependence of blockchain transactions on a network of many computers, they become more secure than centralized currencies.

In a centralized currency exchange setting, a middle man is involved in each transaction. Buyers and sellers both have confidence in the middle man to be able to handle their transactions. The practical example of this method is commonly seen in banks where people trust the bank to keep their money and related transaction records safe.

Benefits of Decentralization?

Blockchain network disperses the risk of loss of transaction records.  This decentralized currency exchange network ensures security of the remaining system even if one part of it is hacked or put in jeopardy.

An easy way to understand this is by imagining the example of a circuit breaker. When the circuit in your house blows, the entire house doesn’t lose the supply of electricity. One or two rooms might lose power but the rest of the house remains lit.

Where is Cryptocurrency Value Derived from?

While cryptocurrency is fungible and can be replaced for another currency or product in the market, the value of cryptocurrency works like that of a non-fungible token. Its value is derived from the amount that people are willing to pay for it.

In a demand and supply chain of business, cryptocurrency value can be exchanged for the ‘supply’ here. The more demand there is for cryptocurrency, the more value it will hold. For example, housing prices in Pakistan increase with each year by a significant percentage. In 2021, a house that was half the price back in 2010 have doubled over due to an increased number of people investing in real estate. A painter dies poor in his life but after death, his paintings are bought for millions of rupees because of an increased demand for his work and an improved will to pay. Similarly, when more and more people want to invest in cryptocurrency, its value goes up.

This is just a small snippet and basic guide to the mechanism of cryptocurrency. Buying and selling ethereum in Pakistan, as well as other cryptocurrencies have now become convenient due to the widely distributed cryptocurrency exchanger service platforms. Us at PKR2Dollar provide swift and easy cryptocurrency exchange services for our customers.