The use of digital currency is increasing. As more merchants include Bitcoin into their accepted forms of payment, additional managers of coin-based assets will become available. So what should we know before investing in cybercash? Here is cryptocurrency explained in simple terms.
How is digital currency different from online banking?
Both digital currency and online banking are mediums to pay for transactions. However, only one can ever take a physical form. You will never be able to touch a Bitcoin (or any other altcoin for that matter) since they only exist in the digital realm.
Cryptocurrency explained straightforwardly is not as complicated as you think. It is decentralized, meaning formal governments do not back them. Still, they are valuable because of their demand, with over 300 million crypto users. We’ll explain more in the next paragraph.
Why do people want to use cryptocurrencies?
A common reason to invest in cryptocurrency is the desire for a long-term store of value. Most cryptocurrencies have a limited supply, capped by mathematical algorithms. It is nearly impossible for any political body or government agency to dilute that value through inflation.
For instance, every bitcoin consists of 100 million smaller units known as satoshis. They will always consist of 100 million satoshis, even if the trading value fluctuates. Furthermore, there are only 21 million Bitcoins in existence. There is no ability to print more. So, the worth changes, but only by people’s desire to use it. As crypto becomes more prevalent, the price per satoshi rises.
Are cryptocurrencies secure?
The answer depends on who you ask. Most digital currency systems rely on a global peer-to-peer network of computers to generate and authenticate the currency. Each block of data contains records of all transactions in existence. The algorithms associated with crypto have been called hack-proof.
At the same time, the FTC warns about cryptocurrency investing. No one can guarantee that you will make money. It is crucial to understand that cryptocurrency does not have the same protections as trading with the U.S. dollar.
Blockchain and cryptocurrency explained
“Cryptocurrencies can have many different uses,” says Donna Parisi, global head of FinTech at Shearman & Sterling. “Some are used in gaming environments to earn rewards in a game, while others facilitate payments.” Digital copies called blockchains record every transaction, and they are stored and maintained by computers around the world. The process is instantaneous, even with the global functionality.
Cryptocurrency investing is a widely debated topic, with more siding towards its current benefits. As managers of coin-based assets grow in popularity, it doesn’t hurt to have cryptocurrency explained in a way that makes us comfortable. Do your research before buying. If you’re just starting, purchase only a percentage of a coin and ease into it.
