Cryptocurrency

Nowadays cryptocurrency is one of the most popular topics on the Internet. We are sure that you have heard of Bitcoin or Ethereum, but there are more than 19 000 cryptocurrencies with different characteristics and values. Crypto can be used for buying regular goods or services, but most people are interested in investing in cryptocurrency.

What is cryptocurrency? 

Cryptocurrency is a digital payment system designed to be used on the Internet. Cryptocurrency payments exist only in digital form and online. Physical money is not involved in transactions and unlike traditional currencies that are controlled by governments, crypto can function without monetary authorities (such as a bank). Cryptocurrency is stored in digital wallets.
Encryption (or cryptography) is used to verify transactions, which is why the payment system is called cryptocurrency. The main goal of cryptography is to provide security and reliability.
The first cryptocurrency was Bitcoin, which was introduced to the public in 2008 and so far, is the biggest, best known, and most influential. The creator of Bitcoin, Satoshi Nakamoto, described his project as a “digital payment system based on cryptographic proof rather than on trust.” Cryptographic proof means that transactions are recorded and verified on a blockchain. 

What is blockchain? 

Blockchain is a public register where records of all transactions are stored in a form of code. The recording of transactions is arranged in a structure that consists of blocks, which are then connected to a chain of previous crypto transactions. Each new block is verified before being confirmed, which makes it almost impossible to forge transaction histories. With a blockchain, each user can create a unified transaction record. 

How are cryptocurrencies created?

A typical method for creating crypto is mining, which is used by well-known Bitcoin. The process involves installing software that contains a history of transactions that occurred in the network. After that computers solve complex tasks in order to verify the authenticity of these transactions. As a result, the owners of these computers receive a newly created crypto. Mining requires a lot of energy and resources; therefore, big businesses dominate the sector. For ordinary users, the easiest way to get cryptocurrency is to buy it from another user or an exchange. 

Five main concepts and advantages of cryptocurrency 

• Privacy. You do not have to provide the merchant with any unnecessary personal information if you pay with cryptocurrency. This guarantees that no third parties such as advertisers, banks, and payment services will have access to your financial information. Additionally, because you do not provide any sensitive information, there is truly little chance that your data will be compromised or that your identity will be stolen. 
• Transferability. With cryptocurrency, transferring money to the other side of the planet is as easy as paying with cash at your local store. 
• Portability. Crypto holdings are not connected to the government or any financial institution, which makes them available in any country no matter what happens to the global financial systems. 
• Security. Cryptocurrencies are secured by a technology called blockchain, which is constantly checked by a huge number of computers. 

Five main disadvantages of cryptocurrency

• No guarantee of being anonymous. Even though cryptocurrency is claimed to be an anonymous payment system, it is actually pseudonymous. Transactions leave a digital trail that can be tracked and decoded by the government. 
• No exchanges and wallet security. Even though cryptocurrency blockchains are extremely secure, crypto repositories like wallets and exchanges can be hacked. 
• Environmental impact. Cryptocurrency mining requires a considerable amount of energy, sometimes as much as an entire country can consume. 
• It takes a lot of time and effort to understand cryptocurrency. Trying to invest in something that you do not fully understand is risky. Even though there are plenty of resources to study, you will still need to spend a lot of time to utterly understand the concept. 
• Not fully decentralised. As we mentioned earlier, cryptocurrency is not tied to the government or any financial institution. However, some currencies on the market are still controlled by the creators or some organisations. 

Why should you invest in crypto?

• You can buy as much or as little as you wish. For instance, you can buy $5 worth of Ethereum. 
• The process of creating a secure account takes only a few minutes. You can buy crypto using your bank account or debit card. 
• You can easily transfer your crypto to anyone, pay for services and goods, or exchange it for any fiat currency (dollars, euros, etc.).
• Cryptocurrency can help to diversify your portfolio beyond the typical buckets of bonds and stocks. 

Is cryptocurrency a safe investment? 

Even though cryptography is generally secure, cryptocurrency has a reputation for unstable investment. Crypto investors should be aware of the following risks: 

• Management risks. There are few protections against dishonest or unethical management practices since the cryptocurrency system lacks coherent regulations. 
• Regulatory risks. Many governments are attempting to regulate crypto as currencies, securities, or both. Therefore, the regulatory status of cryptocurrency is still unclear. 
• User risks. In contrast to traditional finance, once a bitcoin transaction has been sent, it cannot be stopped or reversed. According to some estimations, a fifth of all bitcoins is currently unavailable because of forgotten passwords or invalid transmission addresses.
• Programming risks. Automated smart contracts are used by many lending and investing platforms to regulate the flow of consumer deposits. Users are at risk of losing their money due to a bug in these programs. 
• Market Manipulation. In the world of cryptocurrencies, market manipulation is still a major issue. Some exchanges have been accused of manipulating prices or conducting trades that were unfair to their customers.