When watching news or going through finance websites, magazines and other day to day activities, most likely you will come across something that talks about crypto currency. It has become very trendy these days with more and more people coming out with stories of how they made a fortune overnight.
What is crypto currency?
Before we go any further, let’s first break down what crypto currency is. The word crypto currency is the joining of two words, namely cryptography and currency. Cryptography is the process of turning understandable text into one that is unintelligible and vice versa for confidentiality and authentication purposes. Currency on the other hand is the exchange that allows people to convert their work into something that holds value, which can in turn be exchanged for goods and other services.
So with the union of these two words, we have crypto-currency which is a type of digital currency which is intangible. A currency that uses highly sophisticated encryption that ensures transactions are secure and verified. The way it is designed to work makes it a decentralized medium of exchange. Unlike the normal currencies, crypto currency is independent of financial institutions and is not controlled by a central authority like banks or even governments, because of this, some people look at crypto currency as a way of minimizing the risks associated with the current system which are very easily and harshly affected by things happening within a government controlled economy.
While crypto currency shares characteristics of currency and investment, it still leaves room for debate among experts. It can be used to make purchases but at the end of the day purchasing power is limited due to the fact that it is not widely accepted among retailers and other businesses. Because it has not been widely accepted and because of its volatility, there is a limitation for its use as a currency.
Over the last few years, the demand for digital currency has seen a steady growth fueled by the media which has been showcasing the success of investors in this sector. There are hundreds of digital currencies as we speak and the number just keeps growing.
Types
The first and most popular digital currency is known as Bitcoin which was introduced in 2007 and after its success there has been birth of other crypto currencies like Ethereum, Litecoin, Ripple, Monero, Zcash, Cardano, Dogecoin to mention just a few.
How do they work?
Is it worth it to invest in digital currencies? Just like real currencies, crypto currencies do not generate cash flow and so in order to profit somebody has to pay more than you did. In order to buy crypto currencies, one needs to have a “wallet” which is an online application that assists in holding your currency. Here you can create an account which then allows you to transfer real money in order to purchase crypto currencies.
Security
When it comes to determining the security of crypto currency, there are a few things to understand. Cryptocurrencies are usually built using blockchain technology. Blockchain translates how transactions are recorded and time stamped into “blocks”. This technical process is somewhat complex but the end result is totally worth it. It makes it harder for hackers and therefore your money is safe from theft. Blockchain makes a digital ledger of cryptocurrency transactions. Even though there is security put in place, it does not mean that cryptocurrencies can’t be hacked as a matter of fact there have been a several hacks that have cost the cryptocurrency startups big losses.
The future
The future for cryptocurrency is still uncertain, but some of these digital currencies like Bitcoin for instance has seen its value skyrocket in the recent years, in fact this year alone its value has more than doubled. On the other hand, Ethereum has seen its value quadruple this year. But whether this continuous growth can be sustainable and what it means in the long run is still debatable.
