Digital currency is an important financial innovation. It has been hailed as the future of money, of banking and even of the world economy. However, like all new things, it has its risks and challenges.
Cryptocurrency markets have suffered a number of major setbacks in 2018. There are no guarantees that the present difficulties will not continue in the future – there are signs that they will.
I have written this blog to help educate people about cryptocurrencies and their potential risks so that they can make informed choices as they decide whether to invest or not in them.
Many people think it’s easy to invest in cryptocurrencies. But it is not that simple. There are several factors you need to know before you start investing, such as:
1- Understanding the technology behind cryptocurrencies – The blockchain technology is what makes cryptocurrencies possible. A blockchain consists of a network of computers that verify transactions on the network and maintain a continuously growing list of records called blocks (hence the name “blockchain”). Transactions are grouped into blocks, added to the chain and verified by each computer in the network. The way the blockchain works is by making a proof of work which shows how many times the transaction has been verified. Each time a transaction is verified, it is recorded on the public ledger which is updated every 10 minutes.
The first cryptocurrency was Bitcoin, invented in 2008 by a mysterious programmer under the alias Satoshi Nakamoto. It was intended to be used as an alternative currency and store of value with revolutionary attributes like no counterparty risk and low transaction fees. The first cryptocurrency came together as an open source software project (source code) through collaboration between many developers who use the free software development process (FOSS) and peer-to-peer networking (p2p).
Cryptocurrencies are very new and there is a lot that can go wrong,
When the first blog on cryptocurrencies was published, it was over a decade ago. The Internet was still a novelty, and cryptography was big news. But cryptocurrencies were already trading on a few exchanges in Japan, so it wasn’t surprising that someone had written about them – although the blog post was rather earnest, as if cryptography had been discovered by accident in a Tokyo basement.
The problem with explaining cryptography is that you can’t really explain it in words. You can describe its history, how it works and what is possible with it. But you can’t tell the reader what they should do with it or why they should care about it.
In the early 1990s when the Internet was still an idea and the dot-com boom was just getting started, one of the most popular investment strategies was to buy high and sell low. Most investors knew that the odds were against any particular stock going up in value over the long term, but they could see that there was a lot of money to be made by buying a hot stock at the start and selling it off once it became a “hot potato.”
Cryptocurrencies are very similar to those dot-com stocks — except in one big difference. Dot-com stocks fell dramatically over the course of the ensuing decade; bitcoin has been rising steadily. The fact that you can predict which stocks will fall and which will rise is a difference between cryptocurrencies and dot-com stocks that is huge.
The fact that future prices are hard to predict is also why people who have been around cryptocurrencies for a while understand they are different from other investments. But sometimes it is hard to explain why they are different, even when we know what’s different. When you explain them, it sometimes takes longer than you expect, because you have had so many experiences explaining why things never turn out quite as we thought they would. That’s one reason I write this blog: If I can’t
Cryptocurrencies are the future of money, because they are based on mathematics, not politics or central banking.
Cryptocurrencies solve a lot of problems in the financial services industry. The main problem is that most transactions involve trust. When you pay someone with a credit card, they have to trust that you won’t steal their identity and take your money. When you send money via wire transfer, they trust that the bank will send it where it’s supposed to go. When you use a bank account to do a payment, they trust that the funds will be there when you want them.
Cryptocurrencies don’t require any kind of trust. They don’t have any central authority that can seize your money or freeze your account or demand information about who you are and what you’re doing. Cryptocurrencies just work by using math.
Cryptocurrency is an emerging field of digital assets, which is a digital currency that is designed to work as a medium of exchange. It’s like conventional money, but instead of being controlled by a central bank or other centralized authority, cryptocurrencies use decentralized control.
Cryptocurrencies are peer-to-peer electronic cash systems that are fully decentralized without any third party necessary.They’re not issued by any banks or governments and they use cryptography to secure transactions and control the creation of new units of the currency.
The concept and technology behind cryptocurrency was initially described in 1998 by Wei Dai on the cypherpunks mailing list and was first referred to as “b-money” in 2002. The term “Bitcoin” was coined by Satoshi Nakamoto in his white paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System”
Cryptocurrency is the buzzword of 2018, but it’s still a relatively narrow topic. It doesn’t help that a lot of people have gotten into it, and have no idea what they’re talking about. Instead, start by reading this blog: Cryptoassets: Bitcoin and Beyond.