There’s no denying that cryptocurrency has made headlines around the world in recent years. It offers Internet users a way of storing and sending currency to other people electronically.
But how much do you know about cryptocurrency? And is it something you should consider for your future investments? This handy guide gives you a primer on the subject and tells you everything you need to know.
What is cryptocurrency?
Cryptocurrency is a digital asset that people can trade for goods and services. Such currency gets held in an e-wallet, similar to other digital money solutions like PayPal and Netteller.
The difference between cryptocurrency and traditional money is that they don’t exist in a physical form. Another difference is how cryptocurrency has decentralized controls, compared with central banking systems.
There are many different cryptocurrencies, known as coins or tokens, created by various companies. Some of the best-known examples include Bitcoin, Ethereum, and Dash.
How does cryptocurrency work?
Each cryptocurrency uses a technology known as a blockchain. It’s a decentralized technology that gets spread across millions of different computers or ‘nodes’ globally to manage and record transactions.
The draw of blockchain technology is that each node participates in transactions. Thus it ensures public verifiability, compared to a traditional bank where only a single designated authority manages transactions.
If an addition gets made to a blockchain, most participating nodes must reach a consensus. It’s that consensus mechanism in blockchains that make it a secure and virtually tamper-free network.
You may have heard of masternodes before but have perhaps wondered what their role is in cryptocurrency. In a nutshell, masternodes incentivize node operators to perform consensus functions on blockchains.
While some single computers act as masternodes, mining pools often work together as masternodes to perform those essential functions.
Cryptocurrencies offer plenty of financial transparency, and an example of that is with ledger history. While it’s possible to update blockchains with details of withdrawals, the original creation records are still intact.
What that means is you can see what an original coin or token balance was before updates got appended to the blockchain.
Should you invest?
The thing about cryptocurrency that worries investors is how it doesn’t work in the same way as traditional money currencies. But, that’s also a positive thing because, with continued demand, cryptocurrencies grow in value.
If you’re looking for innovative ways to invest your money, cryptocurrency should be on your list. However, as with any investment, it makes sense to avoid the “eggs in one basket” syndrome.
In other words, you should include cryptocurrency as part of a broad range of investments in your portfolio. Don’t invest your life savings in just one specific cryptocurrency!
These days, cryptocurrency investment is easier than ever, and investors have a vast selection of currencies to choose from. There are also many digital wallet solutions, and even ones backed by physical devices like USB drives to backup your blockchain data.