An explanation of cryptocurrency
Cryptocurrency is a blockchain-based digital currency system. Every transaction on the blockchain is safeguarded and validated by computer nodes that use cryptocurrencies. Wei Dai introduced the idea of cryptocurrencies in 1998. He talked about utilizing cryptography to produce and conduct transactions for a new kind of money rather than relying on a centralized body to do it.
Alternate names: Digital currency
The most well-known cryptocurrency and the first commercial-grade blockchain implementation was Bitcoin. In 2009, Satoshi Nakamoto published a white paper that served as its initial introduction. 1 The idea of a digital, safe, decentralized payment system independent of banks and other financial organizations has gained popularity.
According to CoinMarketCap, there are over 13,000 cryptocurrencies with a market value of over $2.73 trillion that are traded on 425 exchanges. 2 Some of the most well-known cryptocurrencies include Litecoin, XRP, and Ethereum.
How Cryptocurrency Works
Sending a cryptocurrency from one person to the next is the essence of a straightforward transaction. The transfer of cryptocurrency takes place from one virtual “wallet” to another where it is held.
A fixed record is created on the blockchain by each individual cryptographic signature that is attached to a cryptocurrency transaction.
A public and private key is linked to each wallet. To receive cryptocurrencies, you need to create an address for your wallet using the public key. A private key, combined with the wallet, gives you the cryptographic signature that helps verify cryptocurrency transactions.
According to CoinMarketCap, there are over 13,000 cryptocurrencies with a market value of over $2.73 trillion that are traded on 425 exchanges. 2 Some of the most well-known cryptocurrencies include Litecoin, XRP, and Ethereum.
What It Means for Investors
Due to its high risk, cryptocurrency may not be suitable for many investors. While you might be able to fast profit from it, prices are also very erratic. Money can be lost just as fast as it can be made.
Cryptocurrency may be considered a “alternative” investment by some, along with precious metals, private equity, collectibles, and other assets not traded on stock exchanges.
If you have a large sum of money and a varied selection of investments, increasing your portfolio’s diversification by making a little investment in alternatives like bitcoin may be beneficial.
