For a long time, banks were the most trustworthy form of financial transactions. Everyone could trust and believe in the ways that banks worked. Everything was always on the up and up.
However, as time evolved, banks became more greedy. Banks were often always trying to find ways to make more money and many of those ways were not entirely ethical. One only needs to look at the mortgage crisis to consider that perhaps their pursuit of profit.
Many people have been looking for alternatives. One of the fastest growing concepts out there is cryptocurrencies. These currencies are online currency that provide an alternative to banking. They allow for global transactions with no need for financial institutions. The very nature of the cryptocurrency is decentralized and ensures that they can not be abused by outsiders.
What is Cryptocurrency?
Cryptocurrency is a form of digital money. As mentioned, it can be complicated, so explanations here will attempt to keep things understandable. Typically monetary transactions are centralized. There’s always a danger of a double transaction taking place. Cryptocurrency instead decentralizes a currency. Every system has a copy of the transactions of the currency, and every single one needs to agree with a transaction to allow it to occur. These create what’s known as blockchains. Once a blockchain is created, it can never be altered. Cryptocurrency comes from mining the encrypted transaction and blockchain to confirm the validity of the transactions. This ensures that nothing can manipulate the crypto. These miners receive units of the currency as a reward for working through the encryption puzzles.
How Does Cryptocurrency Work?
Cryptocurrency works in a bit of a flowchart form. To start, a transaction is requested. It’s very simple like “Charlie is giving 3 Bitcoin to Denise”. It’s then broadcasted out to the entire network of computers. All of these nodes contain copies of the transactions that have been requested. Even though the transaction may be requested quickly, it takes time for it to be confirmed. This is the crucial step in a cryptocurrency. When it is confirmed, it becomes part of the unchangeable blockchain forever. This transaction can never be changed. This means don’t be scammed, because there’s no way of getting it back. But who confirms a transaction? This is where cryptocurrency miners come into play.
Cryptocurrency is decentralized. That means there’s no central authority out there to confirm the transactions. Instead, it requires miners to work through the cryptographic puzzles and confirm a transaction to add it to the blockchain. In exchange for completing the incredibly complex computational requirements, the miner will receive one blockchain.
How is Cryptocurrency Traded?
In order to trade a cryptocurrency, a person will have to have their own private key. All funds are locked up in the public key cryptography system. Therefore it is incredibly safe and secure. Anyone can trade a cryptocurrency. There’s no permissions required. It can be done through basic software programs. Many stock exchanges are also starting to allow cryptocurrency like Bitcoin to be traded through their systems now. This merely adds another way to trade.
Any trades you make are linked to your online address. A currency will provide you with a chain of characters as an address. For example, Bitcoin provides 30 character addresses. These addresses are essentially impossible to crack by hackers. However, they can obtain them through alternative means if the person who receives them is not safe.
Is Cryptocurrency Risky?
The thing about trading cryptocurrency is that in some ways it’s very risky and in some ways it is completely secure. This makes the trading of a cryptocurrency a very personal choice. Since a person is issued their own specific address and private keys to trade the cryptocurrency, it is incredibly safe in those ways. However, since anyone who possesses that information can trade the currency, and the trade is only tracked to another address, and not necessarily a person, it’s dangerous as well. The trades can seem almost anonymous at times. So if you are someone who has been hacked in the past or is not taking all the precautions they should with their computer, then trading for a cryptocurrency is incredibly risky.
This also negates the risk in the values of cryptocurrency and their cyclical market type. Currencies like Bitcoin often seem cyclical with very large gains and often very large losses in sometimes very short terms. This can make owning and trading them risky as well. Admittedly it also gives them big potential for profit.