What is cryptocurrency?
A day doesn’t seem to go by without a mention of cryptocurrency. But there’s a difference between having heard about something, and actually knowing what it is.
If, like us, you politely nod your head when cryptocurrency is mentioned, fear not! You’re certainly not alone! But here’s a beginner’s guide on the confusing digital currency:
Cryptocurrency – what is it?
As the Daily Telegraph explains, cryptocurrency is a type of digital money that is designed to be secure. There are numerous safeguards that help to prevent hacking and theft.
Rolling Stone explained that one of the biggest allures of this type of currency is that it is decentralised. It doesn’t rely on people or trust, instead it is secured by maths through cryptography.
Cryptography converts legible information into an almost uncrackable code, and it stemmed from the need for secure communication during the Second World War. The digital era has evolved it, using mathematical theory and computer science to secure communications, information and, you guessed it, currency online.
Bitcoin was the first cryptocurrency. It was unveiled in a white paper on Halloween 2008 by an anonymous programmer, or group, under the alias Satoshi Nakamoto. They described it as a “peer-to-peer electronic cash system”. Or, as Rolling Stone succinctly puts it, Bitcoin is a digital currency that “you could buy, trade and invest in online.”
The identity of the inventor of Bitcoin still remains a mystery.
How can it be used?
Like every currency, you can use cryptocurrencies to buy goods. As Coin Telegraph notes, there are many merchants, both online and offline, that accept Bitcoin as a form of payment.
Bitcoin is not the only cryptocurrency available but these other digital currencies, such as Litecoin, Ripple and Ethereum, aren’t as widely accepted yet. Although, this might change in the future.
Many people believe cryptocurrencies are the biggest investment opportunity at the moment. Bitcoin has seen a lot of investment, but Ethereum has seen the fastest rise for a digital currency. But it’s not without risks. Not only does the market fluctuate more than other assets, it is also partly unregulated.
You’ll no doubt have heard the term ‘mining’ in relation to cryptocurrency. But, how do you mine a digital currency? What does it actually mean?
Miners play the most important role in cryptocurrency. Coin Telegraph describes miners as bookkeepers, explaining that they “contribute their computing power to solving complicated cryptographic puzzles, which is necessary to confirm a transaction and record it in a distributed public ledger called the Blockchain.”
These miners receive a reward and a transaction fee once they have solved the puzzle.
This is, of course, a very small rundown of cryptocurrency. But the next time someone mentions cryptocurrency or Bitcoin, you can at least understand that they are discussing a digital currency that is considered to be secure through its basis in cryptography.