Cryptocurrency is a type of digital asset that uses cryptography to secure its transactions and to control the creation of new units of the currency. Cryptocurrencies are decentralized, meaning they are not subject to government or financial institution control. Bitcoin, the first and most well-known cryptocurrency, was created in 2009. Cryptocurrencies are often traded on decentralized exchanges and can also be used to purchase goods and services. Some experts believe that cryptocurrencies have the potential to replace traditional fiat currencies, although this is contested by others. Cryptocurrencies are highly volatile, meaning their prices can fluctuate dramatically. This volatility has made them popular among investors seeking to make quick profits. However, it also means that there is a great deal of risk involved in investing in cryptocurrencies. Before investing in any cryptocurrency, you should research the market carefully and understand the risks involved.
It’s all about blockchain
Cryptocurrency is a digital or virtual currency that uses cryptography for security. Cryptocurrencies make it difficult to counterfeit because of this security feature. A defining characteristic of cryptocurrencies is that they are not issued by any central authority, making them theoretically immune to government interference or manipulation. Bitcoin was the first cryptocurrency and was invented in 2009. Other popular types include Ethereum, Litecoin, and Ripple.
Bitcoin mining is a complicated math operation that involves verifying transactions and solving problems. The process involves chance, and it’s only done part-time, so while mining may have been a major topic in the early days of crypto, investors can now focus on growing their cryptocurrency portfolio by purchasing assets from fiat currencies (typically dollars).
The revolutionary aspect of cryptocurrency is the decentralized database technology called a blockchain. This type of anchors the currency (check the school of block explanation). Unlike other database systems, where one owns a database, blockchain databases have no owner, creating full transparency. Data on a blockchain cannot be copied, forged or destroyed making it more secure than traditional banks which could be vulnerable to hackers or thieves.
In addition to money, blockchain technology also has the potential to streamline supply chains, increase transparency in manufacturing, and reduce friction – thereby changing the way companies operate as blockchains become more widely adopted.
Cash, cards, or crypto?
Currently, crypto divides the line between asset and currency. Businesses are increasingly accepting crypto as payment – in addition to adding crypto to their balance sheets as part of their equity portfolio. And while cryptocurrency can be used to buy goods and services, the volatile nature of the asset makes many investors view it as an alternative investment when they see how it operates in the market.
However, when crypto has reached the mainstream and blockchain technology is more widely used, investors will be able to take advantage of this secure system to protect their traditional portfolios. Blockchain data is virtually impossible to tamper with or erase, but because the technology is decentralized, there is no customer service if you have trouble accessing your investments.
Exchanges have introduced more user-friendly platforms for purchasing and keeping cryptocurrencies, however this optional asset previously needed a “key,” the number required to perform any sort of activity. Early cryptocurrency adopters may know their account is worth millions of dollars, but have lost their key and are unable to recover their funds. That’s why it’s important to learn how cryptocurrency works before deciding whether investing in it is right for you.
Don’t forget your key!
Cryptocurrency security may appear to be contradictory. Blockchain technology was designed to be extremely secure as a seamless, unchangeable, decentralized data storage system in principle. In theory, this can prevent individuals from being hacked or scammed since there is no mechanism for removing or manipulating data. However, because data is distributed, there is no “charge” if something goes wrong – and if your money gets stolen by someone else, it’s hard to recover.
The cryptocurrency wallet is the interface between you and your coins. Your “key” – the password needed to access your funds – is stored in a crypto wallet, which does not keep your money for you. A crypto key is just as valuable as cash; if it’s lost or forgotten, it vanishes from existence. That’s why security technology firm Ledger developed hardware that protects your key from being stolen or hacked by keeping it offline, safe, and secure.
You are learning about crypto. There is also the IRS.
At the moment, crypto-only makes up a small portion of all investments globally. However, as more people become interested in cryptocurrency, it will continue to attract investors. Many potential investors struggle with understanding how alternative investment classes work: once they know how these assets function, they can decide for themselves whether crypto is something that makes sense for their portfolio.
Javier Niskanen is a crypto investor who is passionate about helping others achieve success. He has a background in computer science and has been involved in the crypto world since early 2017. Javier is excited to see how blockchain technology will change the world for the better.