Cryptocurrency is a new way of paying for goods, trading or exchanging a monetary value. Called cryptocurrency because it uses cryptography to secure and verify transactions and to control the creation of new units of any given cryptocurrency. The difference with cryptocurrency and what we see as normal banking and investment is that the cryptocurrency is completely virtual and there is no actual cash exchange. Obviously, this has huge benefits but also huge drawbacks.
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All cryptocurrencies are kept in virtual wallets and these are normally available to everyone and a matter of public record, the anonymity of traders is assured by encryption and security is enabled using a personal ‘key’ that needs to be kept safely offline because if this is hacked, your account could be compromised.
Every transaction within a given cryptocurrency is transmitted to the network guarded by a cryptographic puzzle, it is only the solving of this puzzle that enables the transaction to be completed. The ‘miner’ who solves the puzzle is rewarded with payment in the relevant currency. In this way, the production and therefore value of the currency is regulated.
In the past, cryptocurrencies were only accepted as payment in a very limited amount of areas but these days the situation is very different, and many merchants both on and off line now accept this type of payment. It is even possible to use them in small retailers and on the high street if the business has invested in the correct software for the payment processing.
There are many stories of people becoming millionaires by investing in cryptocurrencies like Bitcoin and Ethereum, with Bitcoin for example rising in value from $800 to $7,000 each in just over one year. This benefit however is marred by a huge risk as the cryptocurrency value, by its very nature can fluctuate massively and because it is considered by many to be the perfect way to launder money or avoid tax. Because of this, many countries are outlawing it’s use.
Although Bitcoin is still the first, and most well-known, of all the virtual currencies there are several other cryptocurrencies to consider if you should decide to invest. Ethereum is the second most recognised cryptocurrency provider with others like Ripple, considered to be faster and more secure than Bitcoin. Dash, with instant transactions believed to amount to $100 million per day and Dogecoin, which started as a joke but now worth $240 million.
The popularity of cryptocurrencies has a lot to do with their ease of use as no actual money changes hands reducing the need to transport cash or gold and the minimal processing fees which allows the user to avoid the high charges normally associated with banks and financial institutions.
The downside of virtual transactions however, is that because the is no central store of cash or gold a computer crash could wipe out all holdings. The need for safeguarding all stored information and any personal access keys is paramount.
Take our quiz to find out just how well you know the cryptocurrencies of today.