Cryptocurrency Definition, Functions, Types, How it Works and Benefits

Cryptocurrency: Definition, Functions, Types, How it Works and Benefits

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Today’s payment transaction tools have undergone many developments. By buying products over the internet, you can buy them without having to use paper currency. Cryptocurrency is one of the digital currency assets as a solution to the needs of today’s online financial transactions.

Well, for those of you who still don’t know what cryptocurrency is, in this article, we will discuss more deeply the meaning, functions, types, and how this digital currency works. First, we will discuss the true definition of cryptocurrency.

What is Cryptocurrency

Cryptocurrency is a digital asset that is understood as a digital currency. This currency is very different from the conventional version, where cryptocurrency is used for virtual transactions over the internet network.

This currency is decentralized, which means that no one party is an intermediary in a transaction. So, payments take place on a peer-to-peer basis, which means they are made between the sender and receiver directly. Also, all transactions will be recorded through a system that is already available with optimal security.

Due to its decentralized nature, cryptocurrency requires sophisticated and capable computer specifications. In general, they will use a blockchain platform to make transactions easier.

Digital Currency Function

Next, enter the topic of the function of virtual currencies. Here we have divided into two kinds of functions related to human activities today.

1. Invest

The principle of this cryptocurrency is the same as the principle of economics, where the price will rise when there is a lot of demand. The more people who invest, the prices will also soar. However, this investment is included in the high-risk category.

2. Buying Goods or Services

For now, there are many companies or organizations that have implemented payment tools using virtual currencies, both from hotels, airlines, restaurants, to applications. At least, there are two companies that have used this transaction tool, namely Overstock and Newegg. However, most companies only accept bitcoins.

3. Mining

Mining is something that is closely related to cryptocurrencies. Users must be able to solve complex cryptographic puzzles to be able to confirm transactions and record them on a blockchain. The greater the power of the user, the greater the chance of being able to solve it.

Types of Cryptocurrencies

Next, enter the material about the types of cryptocurrencies that are often used in various countries as a means of online transactions. And here is the explanation.

1. Bitcoin

Bitcoin is a type of cryptocurrency that was first used and is very popular until now. Bitcoin first appeared in 2009 by a party named Satoshi Nakamoto. As of November 2019, there were more than 18 million bitcoins traded with a total market value of around US$146 Billion. To date, about 68% of cryptocurrencies are a type of bitcoin.

2. BitcoinCash

BitcoinCash was first launched in August 2017. This type was launched because there are a number of bitcoin user groups that do not agree with the applicable rules. They broke away from bitcoin and improvised on this new digital currency, claiming that bitcoin cash is better than bitcoin.

3. Feathercoins

Feathercoin is a type of cryptocurrency that is open source. First created by Peter Bushnell, who worked as an IT Officer at Brasenose College, Oxford University in April 2013. Feathercoin also has similarities with Litecoin and is licensed under MIT/X11.

4. Dogecoin

Dogecoin itself is a derivative of Litecoin which was first introduced in December 2013. As the name implies, Dogecoin uses the Shiba Inu dog as its mascot. Dogecoin is one of the friendliest cryptocurrencies, because there are so many communities that do charity, donate, and other positive activities. In addition, dogecoin also has a lower value than bitcoin.

5. Litecoin

Litecoin was introduced in 2011 as a peer-to-peer (P2P) digital currency that generates new blocks at a faster rate. Litecoin also allows for fast transactions without the need for a powerful computing system.

Cryptocurrency Development in Indonesia

Actually, many Indonesian people know what cryptocurrency is. However, the existence of this digital currency was strongly rejected by the central government. In fact, it is not recognized by laws and regulations as a legal transaction or payment instrument in the country.

This is based on the regulation of Law No. 7 Article 1 Paragraph 1 of 2011, it is explained that the payment instrument accepted in Indonesia only uses the rupiah currency. Even so, the existence of Indonesian cryptocurrencies is still allowed and legal.

Bank Indonesia provides advice to save and conduct buying and selling transactions as assets, but the risk will be borne by yourself. However, since February 2019 you don’t have to worry anymore, because there is already a legal umbrella through regulation no. 5 of 2019 which regulates the technical implementation of the physical market for crypto assets on futures exchanges.

How Cryptocurrencies Work

Here are some ways related to how to use cryptocurrency online payment tools.

1. Transaction activities

If you regularly do cryptocurrency mining, then of course you can use the virtual currency for various types of transactions. Starting from activities on the exchange market by exchanging conventional currencies with bitcoin. Then personal expenses with a note, the company where you transact have provided currency payment facilities in digital form.

Then massive fundraising or crowdfunding to minimize transaction costs if the project that has been funded fails. The cryptocurrency exchange markets that you can find in America are ICE (Intercontinental Exchange), CME (Chicago Merchant Exchange), and CBOE (Chicago Board Options Exchange).

2. How to determine currency values

Cryptocurrencies are created from well-encrypted and unique cryptography. You need to know, the value of each type of cryptocurrency is the same as financial products, where when the demand is high enough with few miners, the value of the cryptocurrency will increase.

This means, the currency value of cryptocurrencies is volatile and can increase or decrease based on the availability of trust of the user. The top-ranking of cryptocurrencies currently is bitcoin and followed by etherium.

Advantages and Disadvantages of Cryptocurrencies

Next is the last material about the advantages and disadvantages of virtual currencies.

1. Advantages

Here are some of the advantages possessed by cryptocurrencies.

Where everyone can use cryptocurrency without any binding regulations and conditions.

With digital currency, each user can see various transaction activities that have been carried out. Of course, this transparency also has a limit where you can’t see the person who made the transaction.

Have control over personal
That is, each user or user will be responsible for their respective currencies.

Fast and accurate
Finally, transactions using virtual currencies are very fast when compared to transactions through banks.

2. Weaknesses

The following are some of the disadvantages of using virtual-based currencies.

Not yet fully licensed
In some countries still do not allow this currency and is still considered illegal. Thus, for some countries, cryptocurrencies do not act as legal tender online.

Unlock security holes
Many people take advantage of cryptocurrencies for criminal purposes. They can carry out transactions illegally without being noticed by exploiting loopholes in the cryptographic code.

Password system
If you do not memorize or forget your password, it will be very risky to lose money on the account that has been created.


  • Cryptocurrency is a digital asset in the form of digital currency as a sale and purchases transaction of products or services through internet-based computer devices.
  • There are various types of digital currencies, including bitcoin, litecoin, dogecoin, feathercoin, and bitcoincash.
  • The function of cryptocurrency is to conduct online buying and selling transactions, mining, and as a means for investment.

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