Cryptocurrency.

What is it?

Cryptocurrency is a decentralized virtual or digital currency based on blockchain technology - a ledger distributed and enforced by a large encrypted network of computers. This makes it almost impossible to counterfeit or double transact. Cryptocurrencies are not issued, distributed or regulated by any authority making them immune to government manipulation or interference due to their decentralized nature.

Cryptocurrencies can be used to procure regular goods and services, however, a large number of people invest in them as they would in assets such as stocks and precious metals. While it is a new and thrilling asset class, it can be risky to buy it, therefore, you need to research to establish how each system works.

How does cryptocurrency work?

Cryptocurrency is digital money that is decentralized and encrypted, unlike fiat currencies such as the US dollar which is government-controlled. Therefore it has no central authority to manage and maintain its value. It is instead distributed among its users through the internet.

 As outlined by Satoshi Nakamoto in 2008, it is a peer to peer electronic cash system established on cryptographic proof and not trust. Cryptographic proof means that all transactions are recorded and verified via a blockchain program that is encrypted and decentralized.

What is a blockchain?

A blockchain is a growing list of records known as blocks that are interlinked or chained together using cryptography. Each block includes a cryptographic hash (a mathematical algorithm that depicts data of random size), transaction data and a timestamp. The timestamp is proof that transaction information exists as at the time the block is being published to the hash.

Each block contains the previous block's information as they make a chain, with each added block strengthening the ones before it. It is therefore not possible to modify data on any given block without altering the subsequent ones. Typically, blockchains are managed using a peer to peer network making it a publicly distributed ledger. In this case, nodes harmoniously abide by a protocol to validate and communicate new blocks.

How many cryptocurrencies are there and what are they worth?

CoinmarketCap currently has more than 5,000 registered cryptocurrencies trading publicly through its platform. Many more cryptocurrencies continue to mushroom, raising money via ICO’s (initial coin offerings). The total cryptocurrencies value as of 1st June 2021 is more than $2.47 trillion according to Bloomberg. Bitcoin being the most popular virtual currency is currently pegged at $701 billion down from a high of $1.2 trillion in April 2021.

Below is a list of the ten biggest trading cryptocurrencies as tracked by CoinmarketCap – a cryptocurrency analytics and data provider as of 1st June 2021.

Why is cryptocurrency so trendy?

There are several reasons why cryptocurrencies have become so appealing to their people all over the world. Here is a few of them;

• The lack of a central governing body makes them more appealing as they have the potential to stay stable even when there is a crisis such as the current Covid 19 pandemic which has rocked the world over. It is seen by many investors as an excellent way of protecting their wealth which is among the reasons it has continued to go up over the years.
• Cryptocurrencies have a huge potential for profit which is another huge reason why many people are investing in them. If you buy a cryptocurrency at a lower price, you can potentially profit when you later sell it at a higher price. Several people who bought cryptocurrencies before they got so popular ended up making huge profits.
• Cryptocurrencies enjoy some of the lowest transaction fees as opposed to other online payment methods. This makes them a more lucrative deal for the investor and those who prefer to use them to buy items online. It is also a very safe payment method.
• It’s easy to get cryptocurrencies. You don’t have to go through several processes or jump through hoops to get it. If you intend to buy cryptocurrency, you will find that the process is easy and customer friendly.
• Cryptocurrency is seen as the currency of the future by many individuals today. Many who have adopted cryptocurrency are also going for cutting edge technological innovations such as blockchain to get ahead of the curve. Blockchain technology is expected to make trading a much simpler and transparent transaction process.

How do you buy cryptocurrency?

Some cryptocurrencies such as Bitcoin are can be bought with U.S. dollars though others will need you to pay with Bitcoin or any other cryptocurrency. To buy a cryptocurrency, you’ll need to create an account at an exchange where you can transfer actual money to buy a cryptocurrency such as Ethereum or Bitcoin.

You will need a “wallet” which is an online application that holds your currency to make the exchange. You can create a wallet via Coinbase and buy and sell almost all cryptocurrencies therein. There is also the rise of other online brokers offering cryptocurrencies such as e Toro, Robinhood, and SoFi Active Investing.

How do you protect yourself?

When buying cryptocurrency during an initial coin offering, always check the fine print of the company’s prospectus for information such as;

• Who owns the cryptocurrency company? A well known and identifiable figure should be a good sign.
• Which other major investors are investing in it? It is a positive sign to see well-known investors wanting a piece of its currency.
• Will you be getting a share in the company, or tokens or just currency? Owning a stake translates to playing a part in the company’s earnings.
• Has the currency been developed or is the company trying to raise money to develop it?

It may take some time to go through a prospectus however the more information it has the better the chances that it is legitimate. Note that its legitimacy does not always mean that the currency will succeed. You will need to conduct a thorough market survey before deciding to buy.

Are cryptocurrencies legal?

It’s no doubt that cryptocurrencies are legal in the United States, however, countries such as China have banned them. It ultimately depends on one country to another.