Digital technology dominates most of the thing in the world, even financial and currency appear in digital form. Cryptocurrency is one a digital form of currency which is the most popular back in 2021.
Cryptocurrency, sometimes crypto, is any form of currency that exists digitally or virtually and uses cryptography to secure transactions which makes it nearly impossible to counterfeit or double-spend.
Cryptocurrencies don’t have a central issuing or regulating authority, rendering them theoretically immune to government interference or manipulation. Instead using a decentralized system to record transactions and issue new units.
Cryptocurrencies is a digital payment system that doesn’t rely on banks to verify transactions. It’s a peer-to-peer system that can allow anyone anywhere to send and receive payments.
When you transfer cryptocurrency funds, the transactions are recorded in a public ledger. and it is stored in digital wallets.
“Crypto” refers to the various encryption algorithms and cryptographic techniques that safeguard these entries, This means advanced coding is involved in storing and transmitting cryptocurrency data between wallets and to public ledgers.
The first cryptocurrency was Bitcoin, which was founded in 2009 and remains the best known until today. The most interest in cryptocurrencies is to trade for profit, which driving the prices skyward.
How does cryptocurrency work?
Cryptocurrencies run on a distributed public ledger called blockchain, a record of all transactions updated and held by currency holders.
Units of cryptocurrency are created through a process called mining, which involves using computer power to solve complicated mathematical problems that generate coins. Users can also buy the currencies from brokers, then store and spend them using cryptographic wallets.
Blockchain is essentially a set of connected blocks or an online ledger. Each block contains a set of transactions that have been independently verified by each member of the network.
Every new block generated must be verified by each node before being confirmed, making it almost impossible to forge transaction histories. The contents of the online ledger must be agreed upon by the entire network of an individual node, or computer maintaining a copy of the ledger.
Types of Cryptocurrency
Bitcoin was the first cryptocurrency and is still the most commonly traded. An anonymous person called Satoshi Nakamoto invented it and introduced it to the world via a white paper in 2008.
Developed in 2015, Ethereum is a blockchain platform with its own cryptocurrency, called Ether (ETH) or Ethereum. Ethereum’s ether markets itself as gas for the underlying smart contract platform.
This currency is most similar to bitcoin but has moved more quickly to develop new innovations, including faster payments and processes to allow more transactions. If you describe Bitcoin as gold then Litecoin is the silver.
Ripple is a distributed ledger system that was founded in 2012. Ripple can be used to track different kinds of transactions, not just cryptocurrency. Ripple’s XRP is used by banks to facilitate transfers between different geographies.
Is Cryptocurrency Safe for Investments?
Unlike government-backed money, the value of virtual currencies is driven entirely by supply and demand. This can create wild swings that produce significant gains for investors or big losses.
Although the underlying cryptography is generally secure, the technical complexity of using and storing crypto assets can be a major hazard to new users. They also need to be careful of scams, hacks, and bugs.
Cryptocurrency fraud and scams
Unfortunately, cryptocurrency crime is on the rise.
Bogus sites which feature fake testimonials and crypto jargon promising massive, guaranteed ROI, provided you to keep investing.
Virtual Ponzi schemes:
Cryptocurrency criminals promote non-existent opportunities to invest in digital currencies and create the illusion of huge returns by paying off old investors with new investors money.
They usually use messaging apps or chat rooms to start rumours that a famous business person is backing a specific cryptocurrency. Once they have encouraged investors to buy and driven up the price, the scammers sell their stake, and the currency greatly reduces in value.
The FBI warns of a trend in online dating scams, where tricksters persuade people they meet on dating apps or social media to invest or trade in virtual currencies. The FBI’s Internet Crime Complaint Centre fielded more than 1,800 reports of crypto-focused romance scams in the first seven months of 2021, with losses reaching $133 million.
Read : The Worst Crypto in History
PROS and CONS of Cryptocurrency
- New, decentralized paradigm for money. In this system, cryptocurrencies eliminates the possibility of a single point of failure. centralized intermediaries, such as banks and monetary institutions, are not necessary to enforce trust and police transactions between two parties.
- Easier to transfer funds directly between two parties, without the need for a trusted third party like a bank or a credit card company. Such decentralized transfers are secured by the use of public keys and private keys and different forms of incentive systems, such as proof of work or proof of stake.
- Transfers between two transacting parties are faster compared to standard money transfers.
- Though they claim to be an anonymous form of transaction, cryptocurrencies are actually pseudonymous. They leave a digital trail that agencies such as the Federal Bureau of Investigation (FBI) can decipher. This opens up possibilities of governments or federal authorities tracking the financial transactions of ordinary citizens.
- Cryptocurrencies have become a popular tool with criminals for nefarious activities.
- Though cryptocurrency blockchains are highly secure, other crypto repositories, such as exchanges and wallets, can be hacked. Many cryptocurrency exchanges and wallets have been hacked over the years, sometimes resulting in millions of dollars worth of “coins” stolen.