In this digital era, cryptocurrency has become a very popular topic in the world of finance.
For beginners, understanding what cryptocurrency is and how it works can be an important first step to getting involved in this fast-growing digital financial market.
Read this article to understand more about the world of cryptocurrency.
What Are Cryptocurrencies?
Basic Definition
Cryptocurrency is a form of digital currency that uses cryptographic technology for transaction security, control of the creation of additional units, and verification of asset transfers.
Cryptocurrencies operate in a decentralized manner without the involvement of financial institutions or central governments.
Main Characteristics
Cryptocurrencies have several key characteristics, including decentralization, anonymity, transparency, and resistance to manipulation.
Thus distinguishing it from conventional fiat currencies which are regulated by governments and traditional financial institutions.
History of Cryptocurrencies
The Beginning of Bitcoin
The first cryptocurrency created was Bitcoin, which was introduced in 2009 by a person or group of people under the pseudonym Satoshi Nakamoto.
Bitcoin was designed as a peer-to-peer electronic payment system that allows the transfer of value without intermediaries.
Further Developments
After Bitcoin's initial success , many other cryptocurrencies began to emerge, including Ethereum, Ripple, Litecoin, and many others.
Each cryptocurrency has its own unique characteristics and is used for various purposes, such as payments, investments, or decentralized applications.
Also Read: Satoshi Nakamoto and the Origins of Bitcoin
Principles in Cryptocurrency
Decentralization
One of the main principles in cryptocurrency is decentralization, meaning that no single authority controls the network or supply of the digital currency.
Instead, decisions are made by a peer-to-peer network consisting of users and miners.
Cryptography
Cryptography is the technology underlying cryptocurrencies, used to secure transactions and control the creation of additional units.
Cryptographic algorithms ensure the security and validity of transactions across the network.
Blockchain
Blockchain is the technology underlying almost all cryptocurrencies, which is a decentralized ledger that records all transactions that occur on the network.
Each block in the blockchain contains a series of transactions that are verified and encrypted.
How Cryptocurrencies Work
Cryptocurrency is a form of digital currency that uses cryptography to secure transactions and control the creation of new units.
The way cryptocurrencies work is based on blockchain technology, a decentralized ledger that records all transactions openly and can be verified by all network participants.
Blockchain
Blockchain is the basis of all cryptocurrencies. It is a decentralized ledger that records all transactions made with cryptocurrency.
Each transaction is packaged in blocks, and each block is connected to each other chronologically, forming a block chain.
Every time a transaction is made, it is verified by the network and added to the blockchain.
Transaction
A cryptocurrency transaction occurs when two parties send and receive units of cryptocurrency.
Each transaction is recorded in the form of a block and added to the blockchain.
When someone sends cryptocurrency, the transaction is digitally signed with their private key, which only they own.
The recipient then verifies the transaction using the sender's public key.
Cryptography
Cryptography is used to secure transactions and control the creation of new units.
Each cryptocurrency coin or token comes with a unique cryptographic code, which differentiates it from other coins or tokens.
Cryptography is also used to store private and public keys used in transactions.
Decentralized Network
Cryptocurrencies are not regulated or controlled by a central authority such as a bank or government.
Instead, transactions are processed by a decentralized network of computers called nodes.
Each node has a copy of the blockchain and works together to verify and record new transactions.
Mining
Some cryptocurrencies, such as Bitcoin, use a mining process to validate transactions and create new units.
Miners use their computing power to solve complex mathematical puzzles.
Every time they successfully solve this puzzle, they can add a new block to the blockchain and get rewarded in the form of new coins.
Consensus
Blockchain networks require a consensus mechanism to determine the valid version of the blockchain.
Indicates that all nodes must agree on the latest state of the blockchain.
Some consensus mechanisms include Proof of Work (PoW), Proof of Stake (PoS), and more.
This is to ensure that valid transactions are received and that no attempts are made to thwart the system.
Cryptocurrency Wallet
A cryptocurrency wallet is software or hardware used to store, send, and receive cryptocurrency.
Each wallet has a unique address that is used to identify its owner and receive payments.
By understanding how these cryptocurrencies work, we can see how blockchain technology and cryptography play a role in creating a new financial system that is decentralized, secure, and transparent.
Although still developing, cryptocurrencies have become an important subject in the world of modern finance and continue to change the way we think about currencies and payment systems.
Also Read: What is a Crypto Wallet or Crypto Wallet? Understand the meaning, types and how it works
Why Cryptocurrency is so Volatile
Cryptocurrencies, such as Bitcoin, Ethereum, and many others, are often known for their high levels of volatility.
This volatility refers to significant price fluctuations in a relatively short period of time. Here are some points that explain why cryptocurrencies are so volatile:
Dependence on Supply and Demand
The cryptocurrency market is heavily influenced by supply and demand. With a limited supply (for example, the number of Bitcoins that can be mined is limited to 21 million), changes in demand can cause significant price fluctuations.
Even small changes in market sentiment can cause large price changes.
Regulatory Uncertainty
Uncertainty about government regulations in various countries can also cause volatility.
Regulatory announcements or actions on cryptocurrencies could send prices soaring or crashing suddenly, as the market reacts to changes in the legal framework that may affect how these assets are traded or used.
Global Economic Instability
Cryptocurrencies are often considered a safe haven asset or an escape from global economic instability.
When global economic conditions are uncertain, investors tend to look for alternative investments, which can lead to rapid spikes or drops in cryptocurrency prices.
Market Sentiment and News
Cryptocurrencies are highly influenced by market sentiment and news.
Good or bad news surrounding blockchain technology, institutional adoption, or significant industry events can influence how investors and traders view crypto assets , and this can trigger dramatic price changes.
Market Manipulation
The cryptocurrency market is also susceptible to manipulation. Due to the market's relatively low liquidity compared to traditional markets, large amounts of trading can have a significant impact on prices.
This increases the risk of market manipulation by large parties or players with large capital, which can lead to unreasonable price fluctuations.
New and Innovative Technology
Cryptocurrency is a relatively new and innovative technology.
The success of blockchain and cryptocurrency technology is still in the exploration and development stage.
This indicates the market is still unstable and highly susceptible to sudden changes in the fundamentals of the underlying technology or protocol.
Inability to Measure Intrinsic Value
The intrinsic value of cryptocurrencies is difficult to measure, as there is no physical asset on which they are based and other factors such as utility and adoption are still in their infancy.
This makes cryptocurrency prices tend to be more volatile compared to traditional assets whose intrinsic value is easier to measure.
Speculation and Leverage Trading
Many cryptocurrency traders engage in speculative activities and leverage trading, where they borrow funds to increase potential profits.
This action increases the risk of volatility, as leveraged trading can amplify price movements in the same or opposite direction.
In order to understand and participate in the cryptocurrency market, it is important to realize that high levels of volatility are characteristic of these assets.
Investors and traders must conduct careful research, have a good risk management strategy, and be ready to deal with large price fluctuations.
Also Read: What is Spot in Cryptocurrency?
Types of Cryptocurrencies
There are two main groups of different types of crypto assets:
Coin
These are currencies designed to be used as a medium of exchange and are built on their own blockchain. An example is Ether, which is based on the Ethereum blockchain.
Altcoins
Refers to crypto assets that are not Bitcoin and are built on various blockchains.
This term stands for “alternative to Bitcoin” and was largely created to improve Bitcoin's functionality.
Some crypto assets, such as Bitcoin, have a limited supply of coins, which helps support demand and strengthen their value.
For example, Bitcoin has a maximum supply limit of 21 million coins.
Tokens, meanwhile, are built on existing blockchains and are considered programmable assets, enabling the creation and execution of unique smart contracts.
Outside of the blockchain, these contracts can be used to establish ownership of assets and can represent units of value such as money, coins, digital assets and others.
Stablecoins, in turn, peg their value to a fiat currency or asset, such as gold, and are often pegged one-to-one to the US dollar.
This gives users the ability to exchange assets that are equivalent in value to national currencies, while still being able to be transacted and stored within the crypto ecosystem.
Non-fungible tokens ( NFTs ) are another form of crypto asset that signifies its uniqueness and irreplaceability.
In comparison, Bitcoin is a fungible asset, meaning one unit can be exchanged for another and its value remains the same.
However, NFTs such as unique trading cards cannot be replicated, so their value and uniqueness remain intact.
Legal Regulations regarding Crypto in Indonesia
Source: https://id.beincrypto.com/
Regulations regarding crypto assets in Indonesia are still developing, with several regulations from various institutions regulating different aspects. Here's the summary:
1. CoFTRA
- CoFTRA Regulation No. 7 of 2020: Establish a list of crypto assets that can be traded on the physical crypto asset market. Currently, there are 229 crypto assets listed.
- CoFTRA Regulation No. 8 of 2021: regulates Physical Crypto Asset Traders (PFK) which includes obligations, prohibitions and registration procedures.
- CoFTRA Regulation No. 12 of 2022: regulates the Implementation of Governance and Risk Management for PFK.
2. Ministry of Trade
- Minister of Trade Regulation no. 99 of 2018: Establishes crypto assets as commodities that can be the subject of futures contracts on the futures exchange.
3. Financial Services Authority (OJK)
- POJK No. 13/POJK.01/2017: Regulates Information Technology-Based Money Lending and Borrowing Services. OJK emphasized that crypto assets are not legal means of payment in Indonesia.
4. Bank Indonesia
- PBI No. 23/6/PBI/2021: Regulates Payment Service Providers. Bank Indonesia prohibits the use of crypto assets for payment transactions.
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Crypto Bill Plan
The government and DPR are currently formulating a Draft Law (RUU) concerning the Development and Protection of Crypto Assets.
This bill is expected to provide legal certainty and more comprehensive regulations for crypto assets in Indonesia.
Regulations regarding crypto assets in Indonesia are still developing and dynamic. Comprehensive regulations are needed to provide legal certainty and protect consumers.
It is hoped that the Crypto Bill can be a solution to answer these needs.
Also Read: Crypto Tax in Indonesia: Based on Minister of Finance Ministerial Decree PMK 68/2022
Advantages and Disadvantages of Cryptocurrency
Cryptocurrencies have advantages and disadvantages that need to be considered before engaging in their use.
Here are some positive and negative aspects of cryptocurrencies:
Advantages of Cryptocurrency
Decentralization
Cryptocurrencies operate on decentralized blockchain technology, meaning no single entity controls them. Thus reducing dependence on central authorities such as banks or the government.
Transparency
Blockchain allows complete transparency in transaction tracking.
Every transaction that occurs can be seen by anyone publicly on the blockchain, reducing the risk of fraud or manipulation.
Low Cost
Transaction fees for using cryptocurrencies are often lower than traditional money transfer fees, especially in cross-border transactions.
Security
The cryptography used in cryptocurrencies makes them very secure.
Transactions are protected by strong encryption technology, providing a high level of security.
Global Access
Cryptocurrencies can be accessed by anyone with an internet connection, regardless of geographic or time restrictions. This allows for easier and faster cross-border money transfers.
Financial Innovation
Blockchain technology and cryptocurrencies have driven financial innovation, including the development of new payment platforms, smart contracts, and other decentralized applications.
Disadvantages of Cryptocurrency
High Volatility
Cryptocurrency prices tend to be highly volatile, with drastic changes in value over a short period of time.
This can lead to high investment risks and uncertainty in daily use as a medium of exchange.
Acceptance Limitations
Although more and more companies and businesses are starting to accept cryptocurrencies, widespread acceptance is still limited.
Fraud and Crime
Although cryptocurrency transactions are safe, there are risks of crimes such as money laundering, illegal trading, and fraud associated with the use of cryptocurrencies.
Loss of Access
Losing access to a digital wallet or private keys can result in losing the entire investment in cryptocurrency, as there is no central authority that can help restore such access.
Uncertain Regulations
Regulatory uncertainty from governments can affect cryptocurrency prices and adoption. Sudden policy changes or bans on the use of cryptocurrencies can affect the market significantly.
What is Crypto Mining and How to Do It
Cryptocurrency mining is the process of validating transactions and adding new blocks to the blockchain through the use of high computing power.
Crypto mining is one of the core elements of blockchain technology that allows cryptocurrency networks such as Bitcoin and Ethereum to operate in a decentralized manner.
In the context of Bitcoin, this process is known as “ proof of work ” (POW), whereas in Ethereum and some other cryptocurrencies, it also involves the concept of “ proof of stake ” (POS).
Check Price :
| TRX Price/IDR | ADA/IDR price |
| ETH/IDR Price | DOGE/IDR price |
| Price SOL/IDR | SEI/IDR price |
How Crypto Mining Works
Transaction Validation
When someone makes a cryptocurrency transaction, the transaction is included in a block which is then added to the blockchain. The miners are tasked with verifying the validity of these transactions.
Block Mining
Each block in a blockchain has a special header that includes the hash of the previous block, the transactions included in that block, and the nonce.
Miners try to repeatedly guess the appropriate nonce value to meet certain requirements to create a valid block hash.
Proof of Work (POW)
In proof of work, miners must complete complex mathematical calculations to find a nonce that meets certain criteria. This requires the use of significant computing power.
Prizes and Commissions
Miners who successfully add new blocks to the blockchain are rewarded in the form of newly created cryptocurrency (e.g., Bitcoin) as well as transaction commissions from each transaction included in that block.
Steps in Doing Crypto Mining
1. Device Selection
Cryptocurrency mining requires powerful hardware, such as a graphics card or ASIC (Application-Specific Integrated Circuit), depending on the mining algorithm used by a particular cryptocurrency.
2. Software Installation
Miners need to install mining software that is appropriate for the cryptocurrency to be mined.
For example, for Bitcoin mining, they can use software like CGMiner or BFGMiner.
3. Join a Mining Pool
Most individual miners join mining pools, where they join other miners to increase the chances of solving calculations and earning rewards more frequently.
Mining pools combine the computing power of many small miners to increase the chance of earning rewards.
4. Monitoring and Maintenance
Cryptocurrency mining requires careful monitoring of hardware and software to ensure consistent good operation.
Regular maintenance and monitoring of temperature and power consumption are also important to optimize mining performance.
5. Payment Arrangements
After earning rewards from mining, miners need to arrange payment to their cryptocurrency wallet or to their bank account, depending on their preference.
While crypto mining can be a significant source of income for some individuals and companies, the process requires a significant investment in hardware, electricity, and time.
Additionally, as competition and mining difficulty increase, profits from mining can become increasingly slim, especially for established crypto assets like Bitcoin.
Therefore, it is necessary to consider carefully before starting cryptocurrency mining activities.
Conclusion
Cryptocurrencies are an important part of the ever-evolving world of digital finance.
For beginners, understanding the basic concepts, history, and principles in cryptocurrency is an important step to start their journey in this exciting digital financial market.
With the right information and deep understanding, anyone can exploit the potential of cryptocurrencies for investment purposes, payments, or other decentralized applications.
Therefore, feel free to explore the world of cryptocurrencies and make this article your guide in understanding the important aspects of these digital currencies.
How to Buy Crypto on Bittime
You can buy and sell crypto assets in an easy and safe way via Bittime . Bittime is one of the best crypto applications in Indonesia which is officially registered with Bappebti.
To be able to buy crypto assets on Bittime , make sure you have registered and completed identity verification. Apart from that, also make sure that you have sufficient balance by depositing some funds into your wallet . For your information, the minimum purchase of assets on Bittime is IDR 10,000. After that, you can purchase crypto assets in the application.
Learn Complete Guide How to Buy Crypto on Bittime .
Monitor price chart movements for Bitcoin (BTC) , Ethereum (ETH ) , Solana (SOL) and other cryptos to find out today's crypto market trends in real-time on Bittime.
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DISCLAIMER: This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.
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