Just what is Cryptocurrency anyway?

It seems like suddenly we are hearing cryptocurrency this…cryptocurrency that. It has made an appearance and now seems to be a permanent fixture in the financial world. Its emergence in the world has been readily accepted by those born and growing up in the Digital Age, namely the Gen Z and the Millennials. However, for the older folks (Gen X and the Baby Boomers) it is more of a challenge to understand and accept. So just what is cryptocurrency anyway?

What is it?

Cryptocurrency is a digital asset or virtual currency that uses cryptography for security, to secure its transactions and to control the creation of new units. Cryptocurrency is decentralised, which means it is not subject to government or financial institution control.

A cryptocurrency is difficult to counterfeit because of its security features. Many cryptocurrencies are decentralised systems based on blockchain technology; a distributed ledger enforced by a disparate network of computers.

What is cryptography?: Cryptography is essentially a set of complex mathematical functions used to “code” transactions so that they are sent in a secure format. This ensures that the data for whom the transaction is intended for can only be received, read, and processed by that person.  [1]

“… cryptography has a surprisingly transparent origin. The word comes from Greek kryptós, meaning “hidden” or “secret,” and graphein, meaning “to write.””

What is a Blockchain? A blockchain is a permanent and secure digital record of cryptocurrency transactions. The transactions are recorded chronologically and are available to be viewed publicly. The blockchain, as its name suggests, comprised of a linkage of blocks, where each block is simply a batch of completed transactions. Individual blocks are secured by linking them with previous blocks via complex mathematical functions.[2]

History of Crypto Currency

Bitcoin, the first and most well-known decentralised cryptocurrency. It was invented by an unknown person or group of people under the name Satoshi Nakamoto and released as open-source software in 2009.

Since then, thousands of other cryptocurrencies have been created. These are often called altcoins, as a contraction of “bitcoin alternatives.” Altcoins include Ethereum, Litecoin, and XRP.

More about Bitcoin

Bitcoin was the first worldwide payment system that worked without a central bank or single administrator. The network is peer-to-peer and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes through the use of cryptography and recorded in a public dispersed ledger called a blockchain.

Bitcoins can be exchanged for other currencies, products, and services. As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment. Bitcoin can be purchased through a digital exchange or ATM.

How do Crypto Currencies Work?

Crypto Currencies use decentralised technology to let users make secure payments and store money without using their name or going through a bank. Transactions are recorded on a digital ledger called a blockchain. Miners confirm transactions by solving complex math problems, and they are rewarded with cryptocurrency for their work. This process is known as mining.

Miner: “an individual, company, or institution that mines cryptocurrency. In other words, they use their computers to process other people’s transactions and add them to the blockchain” [3]

 Cryptocurrencies are often traded on decentralised exchanges and can also be used to purchase goods and services.

Merchants often accept cryptocurrency payments because they avoid credit card fees and can receive payment directly from the customer without going through a third party like a bank or PayPal.

Cryptocurrencies are often traded on decentralised exchanges and can also be used to purchase goods and services. Bitcoin can be bought on centralised exchanges such as Coinbase and Binance.

Risks of Investing in Cryptocurrency

Some people buy cryptocurrency as an investment, hoping that it will increase in value over time. Of course, with any investment, there are risks involved. The value of cryptocurrency can be very volatile—it has seen several large swings in value over its short history. For example, at one point in December 2017, Bitcoin was worth almost $20,000 per coin—today it is worth around $8,000 per coin. Investors should be prepared for wild swings in prices and should not invest more money than they are willing to lose. In addition, cryptocurrencies are still largely unregulated by governments worldwide, so their legal status is uncertain. This lack of regulation also means that if you lose money due to fraud or theft, there is no guarantee that you will be able to get your money back.

It certainly does appear that Cryptocurrency is here to stay! I would behove all of us to get to know a little something about this form of currency, yes even those of us born before the 1970s. If you do decide to not only use it but invest in it, we strongly suggest that you do your own research before investing and hang on for the ride!

[1] https://cryptodefinitions.com/

[2] https://cryptodefinitions.com/

[3] Cryptodefinitions.com