Cryptocurrency 101: Everything you REALLY need to know about Crypto
What is Cryptocurrency?
Cryptocurrency (also known as “virtual currency” or simply “crypto”) is digital currency that can be used as a medium of exchange wherein encryption techniques verify the movement of funds through a decentralized and encrypted ledger named “Blockchain”.
What is Blockchain?
Blockchain is a public, democratized ledger that records transactional data. The records, also known as “blocks” are linked together in a form of a chain (hence the name). It is more easily conceptualized as ‘the database of all crypto transactions’. Each block contains data on transactions, and can even contain data on hundreds of transactions. Once formed, a block cannot be changed, as it is formed through a process called “consensus”. Consensus is the process by which each block is approved by a large network of computers called “Peer-to-peer” (P2P) network. Each computer is called “node”.
Is Blockchain Secured?
Blockchain is a secure method of storing data, as any attempt to tamper with the data on a Blockchain, must tamper with the data on the majority of the nodes in this P2P network.
How Crypto affects the economy? (In a nutshell)
In a way, crypto is an alternative method to the global, traditional financial system. Cryptocurrencies have become increasingly popular in the past few years, and subsequently opened the door for various enterprises, startups, and projects. While it sounds purely promising, it is not all roses and rainbows. Cryptocurrency is highly unregulated, and relatively risky niche, compared to FIAT money, the traditional money we’re all familiar with, regulated by governments (USD, GBP, EUR, etc.)
It all started in 2009, when Bitcoin, the first decentralized cryptocurrency was released. Majority of you probably have heard of Bitcoin, but for those of you who haven’t, Bitcoin is the most popular cryptocurrency as of April 2020, followed by Ethereum and Ripple XRP.
Is Crypto-Currency Safe as an investment?
It is, and it is not. Depending on your financial background, expectations, risk tolerance, and availability, investing in Crypto is likely to go well for you, if done correctly. As with everything in life, we should educate ourselves comprehensively and deeply before embarking on any path. Expanding our knowledge about the nature of cryptocurrency and its industry is no different in this regard.
What are some of the risks associated with Cryptocurrency?
Cryptocurrency is highly unregulated and decentralized in the sense that no one has authority over the Blockchain. Hence, unlike FIAT transactions, it is very unlikely that someone will help you regain ownership of your inaccessible, misappropriated or damaged cryptocurrencies. Having said that, there are multiple ways to retrieve money that was lost through fraudulent crypto transactions, although the outcome is not achieved through reversal in the classic way.
Advantages & Disadvantages of Cryptocurrency
- Anonymity: due to the anonymous nature of crypto, one can possess significant amounts of money without any link to their identity;
- High Volatility: As with anything revolutionary, crypto is extremely volatile, and unstable in its nature, and therefore can generate massive returns in relatively short timeframes;
- Transparency: All transactions are recorded on the Blockchain and visible to the public;
- Security: As explained previously, due to the large network of computers that verify any transaction through the “consensus” process, crypto is highly secured and tamper-resistant; and
- Democracy at play: crypto is decentralized and is not bounded by any government or single authority.
- Anonymity: this is also a disadvantage, as it provides fertile ground for financial criminals and fraudsters who now can easily get along with their deeds, without being detected;
- High Volatility: this is a double-edge sword, high volatility can correspondingly carry high risk of losses;
- Extremely unregulated: as discussed above, this ensures your life would be harder in the event of fraud for example, or when transaction sent to the wrong tag. Bitrue, Wirex and Kraken are examples of the Exchanges/Crypto Wallets that will help you if you’ve inserted the wrong destination, Coinbase, on the other hand, will not. That said, in case you lost your cryptocurrency, there are still fruitful avenues to pursue through which one can ultimately regain ownership of the funds; and
- Frequently unacceptable as a form of payment: not all institutions, businesses or individuals would accept crypto as payment method.
Crypto is a relatively new niche which worth exploration. It has advantages and disadvantages like anything in life, and even if you don’t have plans to invest in crypto — familiarizing yourself with it would raise your awareness of the inevitable, enormous impact it has on the global economy and help you navigate your finance accordingly.