SINCE the 1980s, discussions about establishing an electronic form of money have captivated the world.
In 2009, the first decentralized cryptocurrency, Bitcoin, was created.
Before going any further, knowledgeable investors should be aware that cryptocurrencies are not a guaranteed way to make money and you could lose all the money you have invested in them.
Cryptocurrencies are very volatile and can make large changes in value without notice.
Crypto firms are also not regulated in the same way as other financial companies, which means you are not protected if things go wrong.
What is Cryptocurrency?
Cryptocurrency is formally defined by Dr. Jan Lansky – a professor skilled in computer science, mathematics and economics – as a system that meets six conditions:
- The system does not require a central authority
- The system keeps an overview of cryptocurrency units and their ownership
- The system defines whether new cryptocurrency units can be created
- Ownership of cryptocurrency units can be proven exclusively by cryptography
- The system allows for transactions in which the ownership of cryptographic units is changed
- If two different instructions for changing ownership of the same cryptographic units are entered simultaneously, the system executes at most one of them
Known as a digital currency used to function as a virtual medium of exchange, cryptocurrency does not depend on any central authority – including a government or a bank.
Cryptocurrency exchanges are recorded via blockchain, which is just another word for a growing list of cryptographically secured records.
Cryptography is simply the study of secure communication techniques.
Read our cryptocurrency live blog for the latest news and updates…
What is bitcoin?
Bitcoin is a virtual currency that was created in January 2009 by an unknown computer whiz under the pseudonym of Satoshi Nakamoto.
Unlike physical currencies such as dollars, pounds or euros – which come in the form of physical notes and coins – Bitcoin is not printed or minted.
Instead, Bitcoin tokens are a digital-only form of payment and are created by computer code.
On August 18, 2008, the domain name ‘bitcoin.org‘ has been registered.
Months later, an article by the mysterious Satoshi Nakamoto titled Bitcoin: A Peer-to-Peer Electronic Cash System was published and linked to a crypto mailing list.
While Bitcoin remains the most widely used form of decentralized currency, other cryptocurrencies exist, including LitecoinNamecoin, Peercoin, Dogecoin, Gridcoin, Primecoin, Ripple, Nxt, Auroracoin, Dash, NEO, MazaCoin, MoneroTitcoin, Verge, Stellar, Vertcoin, Ethereum, Classic Ethereumnano, AttachedFiro, Zcash, Bitcoin Cash, EOS.IO, Cardano, TRON, AmbaCoin, Avalanche, Shiba Inu, DeSo, SafeMoon and Internet Computer.
As of February 28, 2022, Bitcoin is currently worth $41,656.00.
How are cryptocurrency transactions recorded?
In a blockchain, a series of blocks that contain a timestamp and transaction data exist.
It is essentially a virtual bank register, without the formal backing of an actual bank.
A cryptocurrency wallet exists for the purpose of sending or receiving digital currencies.
Cryptocurrency networks exist through a computer, called a node.
A node operates to support the relevant network through transactions, validations, or copies of the blockchain.
The timestamp is used to essentially prove the validity of cryptocurrency transactions in a blockchain ledger.
There are different timestamp methods, including proof-of-work and proof-of-stake.
The proof-of-work method allows one party to prove to others that some computational effort has been expended per exchange.
On the other hand, the proof-of-stake method selects validators in proportion to the amount of a blockchain’s holdings in an associated cryptocurrency.
The validation of transactions within cryptocurrency networks is known as mining.
5 risks of crypto investments
BELOW, we’ve rounded up five risks of investing in cryptocurrencies.
- Consumer protection: Certain investments advertising high returns based on crypto-assets may not be subject to regulation beyond anti-money laundering requirements.
- Price volatility: The significant volatility of crypto-asset prices, combined with the inherent difficulties in reliably valuing crypto-assets, exposes consumers to a high risk of losses.
- Product complexity: The complexity of some crypto-asset-related products and services can make it difficult for consumers to understand the risks. There is no guarantee that crypto-assets can be converted back into cash. The conversion of a cryptoasset into cash depends on the existing demand and supply in the market.
- Charges and fees: Consumers should consider the impact of fees and charges on their investment, which may be higher than those of regulated investment products.
- Promotional material: Companies may overestimate product returns or underestimate the risks involved.
We pay for your stories!
Do you have a story for The US Sun team?