An Introduction to Cryptocurrencies
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Cryptocurrencies can widely fluctuate in prices and are not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework. Your capital is at risk.
What is Cryptocurrency?
A cryptocurrency is a digital asset, designed as a medium of exchange that uses cryptography to validate its transactions, and control the creation of new coins. Transactions are validated on a decentralised network of peers (as opposed to a bank, where they are validated internally). Transactions are recorded on a decentralised ledger, which all participants have a copy of, called the blockchain.
Why Buy, Sell or Trade Cryptos?
Whether you are interested in using cryptocurrencies as a way of paying for things, or as a store of value, they are here to stay. Cryptocurrencies and blockchain technologies have risen phenomenally over the past 12 months. To put this into perspective, if you bought one Bitcoin at the start of 2017, you would have paid $800-1150. Even with recent market corrections, you would now be sitting on a 1100% return. Bitcoin was the first cryptocurrency, and has led the way for all the others (the “altcoins”). These altcoins aim to do things differently and better than Bitcoin. Some will win, some will fail spectacularly, but the world now recognises cryptocurrencies as a new asset and investment class.
What Makes Cryptocurrencies Special?
The attraction of cryptocurrencies are as follows:
Because there is no central body controlling your transactions, the ledger is publicly available to all. This means you can view all transactions that have ever happened on the blockchain.
2. Non Permission-based
You don’t need anyone’s permission to use cryptocurrencies. All you need is a wallet and a smartphone. Contrast this to banks and institutions, where people are required to meet certain criteria before being allowed to have a bank account. Currently over 2 billion of the world’s population (34%) does not have access to a bank account. In the USA, 68m Americans do not have a bank account, and 1.5 million UK residents don’t either.
Many believe that cryptocurrencies will help level this playing field where the majority of the wealth is held in the hands of a select few.
3. Low transaction fees
Anyone who has sent money overseas knows how much that can cost. That’s because it usually involves several “middlemen”, all taking a small percentage for their part in getting your money from A to B. With cryptocurrencies, the fee is paid to the miner who validated your transaction, typically a nominal amount. As a result, transaction fees are generally much lower than they are with fiat currencies.
Security & Value. When stored in the right way (using a hardware or paper wallet), cryptocurrencies are secure. You place money in a bank because you trust them not to lose it, or go broke. The experiences of 2008 onwards have proven to the western world that banks can go out of business, and people can lose all their savings. This does not happen with cryptocurrencies, as they are built on the premise that you should trust nobody with your assets.
The value of cryptocurrencies (and in fact any asset) is driven by scarcity and utility. Cryptocurrencies are generally limited in supply, thereby guaranteeing the scarcity. There will, for example, only ever be 21m Bitcoin in circulation. This is in contrast to traditional currencies, where central institutions can unilaterally decide to “print more money”, thereby devaluing the money already in circulation.
Utility is an aspect of cryptocurrencies which is still forming. We are in the very early days of cryptocurrencies and while utility is growing, there is a long way to go before they are adopted wholesale as a means of currency. However, more institutions are, every day, starting to accept cryptos as a viable means of value transfer.
4. Open Source
The bitcoin protocol is written in C++ open source code, which is available to anyone and everyone to review at any time. This ensures that everyone can check that bitcoin is doing what it is supposed to do (for example, not issue a further 21m coins!). The same is true for all the cryptocurrencies. There are no deals, or changes going on behind closed doors to benefit the privileged few.
The Future of Cryptocurrency
The rise of cryptocurrencies has been likened to the Internet in the late 90s. They demonstrate huge potential, but their true value and utility has yet to be found.
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VISIT SITE Cryptocurrencies can widely fluctuate in prices and are not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework. Your capital is at risk.
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