In simple words, cryptocurrency is a digital asset. The name originates from the fact that all of your transactions are highly encrypted, which makes exchanges highly secure. It is decentralized in nature, unlike traditional currencies, which are managed and controlled by a central authority. What is cryptocurrency? A cryptocurrency is a digital currency, which is an alternative form of payment created using encryption algorithms.
The use of encryption technologies means that cryptocurrencies work both as a currency and as a virtual accounting system. To use cryptocurrency, you need a cryptocurrency wallet. These wallets can be software that is a cloud-based service or that is stored on your computer or mobile device. Wallets are the tool through which you store your encryption keys that confirm your identity and are linked to your cryptocurrency.
What is cryptocurrency? Cryptocurrency is best seen as a digital currency (it only exists on computers). It is transferred between peers (there is no intermediary like a bank). Transactions are recorded in a digital public ledger (called a “blockchain”). Transaction and general ledger data are encrypted using cryptography (which is why it is called a “crypto” currency).
It is decentralized, which means it is controlled by computer users and algorithms and not by a central government. It's distributed, which means that the blockchain is hosted on many computers around the world. Meanwhile, cryptocurrencies are traded on online cryptocurrency exchanges, such as stock exchanges. Bitcoin (commonly traded under the symbol BTC) is one of many cryptocurrencies; other cryptocurrencies have names such as “Ether (ETH)”, “Ripple (XRP) and “Litecoin (LTC)”.
Alternatives to Bitcoin are called “altcoins”. What is cryptocurrency mining? People who run software and hardware intended to confirm transactions to the digital ledger are cryptocurrency miners. Solving cryptographic puzzles (through software) to add transactions to the general ledger (the blockchain) in the hope of earning coins as a reward is cryptocurrency mining. By itself, call it blockchain, although in reality there are several (don't worry, we'll explain it to you below).
Cryptocurrencies allow parties to transfer value online without the use of a central counterparty, such as a bank. While early Bitcoin users could mine cryptocurrency using regular computers, the task has become more difficult as the network has grown. Without a backup strategy, you will have no way to recover your cryptocurrency and you could lose your investment. Just like you wouldn't carry a million dollars in a paper bag, don't choose an unknown or lesser-known wallet to protect your cryptocurrency.
When a cryptocurrency is minted or created prior to its issuance or is issued by a single issuer, it is considered centralized. Some argue that cryptocurrency is a superior form of value transfer because it offers a level of privacy, security, and immutability (irreversibility) that traditional money doesn't offer. Cryptocurrency is a good investment if you want to gain direct exposure to demand for digital currency, while a safer but potentially less lucrative alternative is to buy the shares of companies with exposure to cryptocurrencies. For example, a retiree looking to draw on a stable income fund may not find a highly volatile cryptocurrency suitable for their portfolio.
A cryptocurrency (or “crypto”) is a digital asset that can circulate without the need for a central monetary authority, such as a government or bank. If the underlying idea behind cryptocurrency falls short of its potential, long-term investors may never see the benefits they expected. Before converting real dollars, euros, pounds or other traditional currencies into (the symbol of Bitcoin, the most popular cryptocurrency), you should understand what cryptocurrencies are, what are the risks of using them and how to protect your investment. Supporters see cryptocurrencies as Bitcoin as the currency of the future and are rushing to buy them now, presumably before they become more valuable.
Whoever owns a set of keys owns the amount of cryptocurrency associated with those keys (just as whoever owns a bank account owns the money it contains). Some speculators like cryptocurrencies because they are rising in value and have no interest in long-term acceptance of currencies as a way to move money. Cryptocurrencies such as Bitcoin have traditionally had little price correlation with the US stock market, so owning some can help diversify your portfolio. Other evolving legal issues surrounding cryptocurrencies and blockchain include regulation of decentralized autonomous organizations (DAOs), tax treatment, and anti-money laundering requirements.