As cryptocurrency becomes more popular, retailers are turning to it as a form of payment. However, if you’re not familiar with this digital currency, cryptocurrency payment options might leave you confused. Various terminology gets bandied about, and it can be challenging to understand what it all means. So, here is a basic rundown of some of the different types of cryptocurrency and how it all works.
The term cryptocurrency is the overarching term used to describe everything within the sector. A digital payment system means that everything within crypto is virtual. There are no coins or notes involved, and most importantly, it is peer-to-peer with no intermediary. It was first invented as a secure payment method by people fed up with banks and governments being involved in transactions.
The security system is known as the blockchain, which records every single transaction in a record that cannot be edited or deleted, and is a public document record. It is more anonymous than using cash and very secure, thanks to the complex nature of the blockchain. The only thing that people sometimes struggle with is that, unlike the standard currency, the value of cryptocurrency can fluctuate, going both up and down.
Within cryptocurrency, you have things called coins and tokens. When it comes to the ability to have cryptocurrency payment options, you are looking at the various types of coins, and each retailer is free to choose which coins they are going to accept.
You have probably heard of Bitcoin; this was the first type of cryptocurrency ever invented, and over 18.5 million Bitcoin tokens are in circulation. Bitcoin cash is the most popular way of using cryptocurrency. Litecoin is increasing in popularity and is the second most popular coinage used within cryptocurrency. It works in pretty much the same way as Bitcoin does and has been around since 2011. An ex-employee of Google, Charlie Lee, invented it to improve how Bitcoin technology worked. Therefore, Litecoin has lower fees, shorter transaction times and more concentrated miners, as in his opinion, these were the areas that needed improvement.
Ethereum is another word you will often hear associated with crypto. It has been said that the focus is not a digital currency, but on a way of decentralising applications. One way of looking at it is a bit like the App Store. Again, this is all about cutting out the middleman and not letting them take control, in this example, Apple. With Ethereum, there is a direct connection between app designers and the end-user, and the token or cryptocurrency here is what we call Ether.
Cryptocurrency can be pretty tricky to understand, especially when you move on to a currency known as Ripple. This is a coin-based cryptocurrency, but it doesn’t use blockchain. Ripple was not designed for single users; it was actually aimed at corporations and large companies moving their money around the world. The actual coin part of Ripple is known as XRP. If you spend enough time in the cryptocurrency arena, you will also come to hear about Stella, which is a product used for money transfers. Others include NEO, Cardano, and IOTA. Again, all of these have individual functions that help form the fundamental basis of cryptocurrency.
Where does it come from?
If you were going on holiday from the UK to Europe, you might exchange your Great British pounds for Euros. In much the same way, you can exchange Great British pounds for cryptocurrency. Cryptocurrency can also be exchanged, so you could use Bitcoin to purchase NEO or trade in the same way as any other form of trading. Some sporting, entertainment, media platforms and others have paid their staff in cryptocurrency. Unlike standard currency, there is no overall bank or holding pot with a predetermined value. Cryptocurrency is a finite source that can be mined.
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Mining is akin to panning for gold. However, in this case, it is all based on computers, and the people who mine are generally tech-savvy investors. To mine cryptocurrency, computers must be used to solve extremely difficult puzzles and crack codes. It certainly isn’t your everyday type of puzzle, but if it gets solved, a certain amount of cryptocurrency is paid out as a reward.
One downside to mining is the expense involved, which some people, including billionaire Elon Musk, have said makes it not environmentally friendly, and therefore, we shouldn’t be doing it. The hardware needed is extremely expensive because it has to be so powerful and to mine for cryptocurrency uses an intense amount of electricity.
So the bottom line is, for most people, the only way they are going to have cryptocurrency is to purchase it, but it is a growing industry, and more and more people are getting involved.