Cryptocurrency. It seems to be the word on everyone’s lips when talking about modern online money exchange as the world evolves from the handing over of dollars and cents and pounds and pence. It has taken the world by storm and now hundreds of experts in the field believe it will replace currencies issued by central banks in global finance by 2050 – possibly even as early as 2035. But what is cryptocurrency? How does it work? How many different types are there? And how can it benefit you?
We will start with the basic explanation as to what exactly cryptocurrency is…
What is cryptocurrency?
Stock management experts Investopedia.com describe cryptocurrency as a digital or virtual currency which uses cryptography (a type of encryption) to secure it from counterfeit forgery and double-spending – the practise of copying a digital token to be re-used again. The majority of these cryptocurrencies (there are a lot!) use technology called “blockchain” which is a type of system that records information in blocks that link (or chain) together in a way that makes it impossible to change, hack, or cheat the system. Basically, a blockchain is a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems to record a single digital asset such as digital/crypto currency in a way that ensures the integrity and security of a transaction. The “crypto” aspect of cryptocurrency refers to the various methods of encryption that make transactions secure, using this blockchain technology.
To break it down in much more simpler terms the definition provided by HMRC for cryptocurrency signifies it as digital or virtual assets that can be traded and used to pay for things. You may think of these assets (or “tokens”) as a replacement for conventional money. However this is not related to an actual asset with what we would consider in our world of cash handling to have a “value” attached to it (e.g. $1 is worth $1, £50 is worth £50 and so forth) – rather, the value of the asset is determined by supply and demand meaning it is only worth what a buyer will pay for it. This does mean that cryptocurrencies can often be speculative, unpredictable and hard to accurately value.
What are the different types of cryptocurrency?
As we said earlier, there are quite a lot of different types of cryptocurrency. You may have heard of Bitcoin, Litecoin, Tether and Ethereum but there are a staggering 5,000+ different cryptocurrencies in existence – however, the top five and most well-known crypto behemoths currently count for over 80% of the overall market, with Bitcoin alone having a market cap of $600bn!
How do cryptocurrencies work and how do I use them?
The key difference of cryptocurrencies that sets them aside from so-called “regular” currencies is that they are not issued and controlled by a central bank or government; rather they operate on an open network with transactions taking place on a peer-to-peer basis. The blockchain technology we mentioned earlier keeps a public record of all such transactions.
The best way to use them is to invest – to buy, spend and trade. Revolut was created in 2015 and is one of many platforms which have been set up to allow users to invest in cryptocurrencies and to trade them freely – do your research online to work out the best platform for you to make the trades you are comfortable with as there can be a lot of great value if you know where to look.
There’s a whole mine of information online as to which cryptocurrencies to trade in so start by reading some guides and user reviews. The biggest aspect to keep a close eye on is how strong their price performance is, but you must also consider their user community, tech and the team behind the asset. You may want to test the waters with one of the leading cryptocurrencies like Bitcoin to get a feel for the market before you go further.
In an exciting development, cryptocurrencies have gained so much traction in recent years that they are now also being included as a payment option across thousands of online business platforms. For those of you who like to check out those Vegas Odds you can even use this method of transaction to safely and securely spend in online and sportsbooks.
Ok, but how does all of that benefit me?
The biggest advantage with the spending of cryptocurrencies has to be the ease of immediate international peer-to-peer transactions without having to wait for the middle man to authorise and finalise the outcome and without having to deal with any associated banking fees. Furthermore, the very nature of cryptocurrency operating solely online via a computer or a smartphone makes it fully accessible to absolutely everybody with access to the internet – you don’t need to have a traditional bank account. It is also nigh-on impossible for hackers to steal cryptocurrencies due to its secure nature plus the fact that it is not actual physical currency.
When it comes to the investing side of cryptocurrencies the opportunity for high returns is favourable, as is the immediate instantaneous nature of the currency. There is also guaranteed protection from payment fraud and greater transparency allowing you to conduct your business in your own time whilst also having your identity properly hidden to avoid the risk of data breaches seen elsewhere. Meanwhile, the aforementioned immediate payment of international transactions is incredibly beneficial to the trading aspect.
The possibilities are endless when it comes to cryptocurrency and the reasons why its the word on everyone’s lips are the reasons why you should be part of the evolution of currency.