You've heard the talk about cryptocurrencies. But what exactly is a cryptocurrency, and why should you care?
Cryptocurrency is a virtual or digital currency typically doled out as “coins” or “tokens.” While their makers vary widely, the general idea is the same: to create a decentralized network of currency that bypasses central banking systems and government regulations. However, the latter half of this foundation has come under scrutiny as their use has grown, especially from governments concerned about illicit activities – and in some cases, their ability to track and tax transactions.
It’s essential to note that cryptos are somewhat new on the financial scene – Bitcoin was only established in 2009. Still, the last few years has seen a sudden uptick in their production. These altcoins, or alternative coins, often purport to best Bitcoin in features or usability, though none of them have reached Bitcoin’s level of success – or their security features.
This hasn’t stopped them from trying, however: there are literally thousands of altcoins available now, with more developed each month. And now that a fortunate few have entered mainstream conversation, several major companies have begun accepting them as payment for goods and services.
These are the altcoins who have risen through the ranks not only to recognition and legitimacy, but truly massive market caps, as well.
Cryptos function on the principles of cryptography, or the mathematical and computational encoding and decoding of data. While we won’t go too far into the specifics, it’s cryptographical processing that allows makers to create and transact these digital currencies. This means that currencies can flow from person to person, entirely bypassing institutions that may process, track, and even take a chunk of such payments.
Cryptos work via blockchain technology, in which a decentralized system is spread across many units. These units – typically computers with special processors – then manage and record transactions. Blockchain systems are unique in the virtual space because their infrastructure means they’re incredibly secure (though not infallible, as we’ll discover shortly).
Despite such cautions, it appears that cryptocurrencies are here to stay – at least for a while.
The continuous entry of institutional players, from billionaires like Elon Musk to companies like Microsoft and PayPal, has increased both public interest and crypto’s financial legitimacy. And as major firms continue to give endorsement to digital currencies, smaller players will be empowered to adopt similar practices.
Furthermore, the more people that make use of these currencies, the more stable they are likely to become as liquidity and utility increase and volatility – hopefully – decreases. Only time (and government regulation) will determine if such changes are here to stay.
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