You've probably heard the terms cryptocurrency, bitcoins, or crypto assets on a number of different places, on the news or social media for example. But what exactly is it, how do you buy it and what is it for?
Cryptocurrencies are not like the cash that we carry around. Basically, it's a digital or virtual currency that is secured by cryptography making it nearly impossible to counterfeit. There are thousands of types of crypto assets, some of them you have probably heard of: Bitcoin, Ripple, Litecoin and Ethereum.
Where does the name of them come from?
The first part of the word, crypto, comes from the Latin word for hidden or secret. This is not only a reflection of the secure technology that is used to make payments and record who owns what, but also the fact that this currency only exists electronically. There is no physical currency, plus there is no central bank or government who manages the system or could step in should something go wrong. The second part, currency, describes what they are, a type of electronic cash.
Cryptocurrencies are a relatively knew phenomena, the first being Bitcoin which was launched in 2008. The market for these digital currencies is very volatile and because they don't need to have a bank to regulate them, they tend to be uninsured and fairly difficult to convert into any other form of currency like US dollars or euros. Also, as they are digitally based, they can be hacked like any other intangible technology asset. As you store your cryptocurrencies in a digital wallet, if you lose your wallet, you lose your entire investment.
Choosing the right wallet is essential, making sure you research to find out which wallet is the best one for you. If you choose to manage your wallet with a local app on your computer or mobile device, you will need to protect the wallet at a level that is consistent with your investment. In the same way, you wouldn't carry a million pounds around in a plastic carrier bag you wouldn't choose a lesser known or unknown wallet to protect your cryptocurrency. Also make sure you have a back-up
strategy so that if the worst happens and the device you store your wallet on is lost or stolen you can still have access to it.
How is crypto secure?
You may ask, if there are no banks or governments involved how can it be secure? It is secure because all transactions are vetted by a technology called a blockchain. This is similar to a balance sheet or ledger in a bank, the only difference being that a crypto blockchain is distributed across participants of the digital currencies entire network rather than being kept in one place. The blockchain is constantly being checked and verified by a decentralised set of miners or validators. Every transaction is published publicly so there is no room for anyone to manipulate transactions, change the money supply or adjust the rules.
Though cryptocurrencies can be used to buy and sell things, you can make transactions with people on the other side of the world as easily as paying cash at your local supermarket and there is no need for an intermediary such as a bank or payment processor, they are not widely accepted as a means of payment and no major high street store in the UK accepts them Today they are generally held as investments by people who expect their value to increase.
