What is a cryptocurrency? In recent years, cryptocurrency has gained in popularity, becoming something of an investment craze. But what exactly is cryptocurrency? And why should you care? Here’s the lowdown on digital currency, including everything from how it works to some pros and cons you should be aware of before investing in it.
What Is Cryptocurrency
Cryptocurrency is a digital currency that uses cryptographic principles to validate transactions and create new units. This means that it’s possible to exchange a cryptocurrency like Bitcoin for a good or service anywhere in the world, provided that you have internet access.
A wide range of cryptocurrencies exist (see more about them here), but Bitcoin was one of the first and remains one of the most popular. Bitcoins can be used to purchase items from companies who accept them (this includes some big-name brands), but most people just buy coins as an investment or trade with friends and colleagues. If you’re interested in learning more about cryptocurrencies and how they work, check out Investopedia’s guide to buying Bitcoins here.
Bitcoin’s Rise To Prominence
Like most technologies that have defined our time, cryptocurrencies are evolving fast. If you’re new to digital currency, here’s a brief timeline of its evolution: In 1994, Wei Dai proposed a theoretical concept of b-money – an anonymous, distributed electronic cash system.
In 1997, Nick Szabo created bit gold—another encrypted monetary system. In 1998, Wei Dai published a formal proposal for b-money. Around 1999 – 2000 Satoshi Nakamoto published a paper describing Bitcoin (a peer-to-peer payment system). He also implemented it as open-source code in 2009 and released it as open-source software in early 2010.
The Benefits of Blockchain Technology
Blockchain technology has made a splash in recent years. In 2018, blockchain was among one of Silicon Valley’s top 10 hottest trends. Technology giants like Microsoft (NASDAQ: MSFT), IBM (NYSE: IBM), Intel (NASDAQ: INTC), and Oracle (NYSE: ORCL) have invested millions into developing solutions for blockchain technology. All are trying to tap into its vast potential for creating new types of business applications that could disrupt entire industries from finance to food safety not to mention how it could change our everyday lives.
Cryptocurrency’s built-in system of trust ensures that everyone can verify each transaction without requiring a middleman or having to place their trust in someone else to handle funds correctly.
The Risks Involved in Investing in Cryptocurrencies
Cryptocurrencies aren’t backed by any government or bank, so if you invest in them you’re at risk of losing your money. This is particularly true for smaller cryptocurrencies (and their associated tokens). They tend to be less stable than larger digital currencies like Bitcoin.
So there’s a chance you could lose some or all of your investment very quickly. Of course, that also means they could become more valuable than ever before—so it pays to research each token individually and not just go with what everyone else is doing. (See: How Do You Pick a Cryptocurrency Exchange?)
How to Buy Cryptocurrencies
If you’re looking to buy cryptocurrencies, like Bitcoin or Ethereum as an investment or use them to purchase goods and services online, then you’ll need a place to do so. This can be done through an exchange website like Coinbase or LocalBitcoins.
While these platforms offer several payment methods including credit cards or bank transfers; many consumers opt for one of these two alternatives because they are among some of the easiest ways to buy. You’ll want to look into your options because not all exchanges work in every country.
Coinbase supports 32 countries while LocalBitcoins supports over 200 countries worldwide! If you decide on either platform as your go-to crypto exchange platform then make sure that you enable two-factor authentication on both accounts.
Where Does Crypto Fit In With Our Current Financial System?
Cryptocurrency has been referred to as the currency of tomorrow, so before we get into how it works today, let’s take a quick look at how it might fit in with our current financial system. Cryptocurrency can be used as money in a sense; however, it’s more similar to an investment than actual money. Cryptocurrency can be traded in much the same way stocks are.
By buying Bitcoin or Ether (crypto-based tokens) you’re investing in that particular token rather than actually spending money on goods or services. The benefit of doing business with cryptocurrencies is that they eliminate most middlemen—such as banks—and allow buyers and sellers to transact business quickly via a global network called the blockchain.
The Future Is Looking Bright
Cryptocurrency, otherwise known as digital currency or digital money, has grown by leaps and bounds over the past decade. It’s already become a multi-billion dollar market with tons of applications being developed all around us.
And while it might seem like just another passing craze that’s bound to go away like so many trends before it (remember Beanie Babies?), cryptocurrencies are looking more like a legitimate financial asset with each passing day. Let’s take a closer look at what cryptocurrency is and why you should pay attention.