3 min read
What is Cryptocurrency?

Cryptocurrency

Well, it’s a type of digital currency that relies on cryptography and anonymity to help protect users against fraud activities and also being scammed. It involves the creation or exchange in transactions through computers and their whole operation revolves around cryptographic protocols for tracking money movement between each other (distributed ledgers - blockchains) so they’re essentially cashless. In addition, “digital wallets” are used everyday along with various forms of electronic cards to allow transactions to be done through brokers.

Cryptocurrencies, or virtual currencies, are digital means of exchange created and used by private individuals or groups. Because most cryptocurrencies aren’t regulated by national governments, they’re considered alternative currencies — mediums of financial exchange that exist outside the bounds of state monetary policy.

Bitcoin

Bitcoin (BTC) is the preeminent cryptocurrency and the first to be used widely. However, hundreds of cryptocurrencies exist, and more spring into being every month. Non-Bitcoin cryptocurrencies are collectively known as “altcoins” to distinguish them from the original.

Functionally, most cryptocurrencies are variations on Bitcoin, the first widely used cryptocurrency. Due to their political independence and essentially impenetrable data security, cryptocurrency users enjoy benefits not available to users of traditional fiat currencies, such as the U.S. dollar, and the financial systems that those currencies support. For instance, whereas a government can easily freeze or even seize a bank account located in its jurisdiction, it’s very difficult for it to do the same with funds held in cryptocurrency — even if the holder is a citizen or legal resident. On the other hand, cryptocurrencies come with a host of risks and drawbacks, such as illiquidity and value volatility, that don’t affect many fiat currencies. Additionally, cryptocurrencies are frequently used to facilitate gray and black market transactions, so many countries view them with distrust or outright animosity. And while proponents tout cryptocurrencies as potentially lucrative alternative investments, few serious financial professionals view most coins — with the important exception of Bitcoin and a few others — as suitable for anything other than pure speculation.


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