Cryptocurrency is a digital or virtual form of money that is secured using cryptography. Perhaps the most famous type of cryptocurrency, and the one most people are familiar with is Bitcoin.
You will see cryptocurrencies in the news a lot and for good reason. There is a lot of interest in these types of currencies.
Please read on for an overview of cryptocurrencies that explains more about what they are, their advantages and the appeal of a decentralized currency.
Learn the Basics of Cryptocurrencies
At first glance, a cryptocurrency can seem like any form of digital or virtual currency. In today’s world where cash is rarely used, and everyone has a banking app on their phone, a crypto or digital currency can feel very similar to any other traditional currency. However, there are some very stark differences.
To start, there are no physical representations of these cryptocurrencies. If you went to the bank and demanded to withdraw your money, you would receive a stack of physical paper bills. For cryptocurrencies, there is no physical, tangible money. It is entirely digital! This can be appealing in some ways, including the fact that no one can physically steal your cryptocurrency from you.
Because this currency is protected and secured through cryptography, no one person holds the key to these currencies, making them safer in many respects. This is not a trust-based system, and no one must rely on the goodness of others to virtually protect their assets.
Instead, the nature of cryptocurrencies ensures that cryptographic technology safeguards the currency and prevents people from altering it in any way. Unlike traditional currencies, cryptocurrencies are valued largely by supply and demand. Thinking about it from the valuation process, this makes them closer to stocks than to dollars.
If demand for a cryptocurrency is high, then its value will also be high. If demand is low but supply is high, then the value will decrease. Bitcoin is the most common variety of a cryptocurrency, but other types include Zcash, Litecoin, Dash, and Ethereum.
Cryptocurrencies such as Bitcoin do have exchange rates for traditional currencies, and they can be used to purchase a wide range of products or services. In the past, cryptocurrencies were only used to buy and sell products or services online, but now there are Bitcoin ATMs, and you can even use Bitcoin to make purchases from major retailers.
The Appeal of a Decentralized Currency
There are many reasons that cryptocurrencies are appealing. One of the biggest is the fact that cryptocurrencies aren’t tied to any one country or banking system.
Cryptocurrencies are decentralized, which means that there isn’t one central hub or entity that is tracking the spending, balances, and use of the currency. Rather, there is a database that is unchangeable and runs on peer-to-peer networks.
Many people have deep and serious concerns about placing the sum of their assets into the hands of one centralized organization. In fact, that’s why so many individuals decide to bank offshore or establish international real estate trusts. Diversification is not a new idea in the world of investing, and cryptocurrencies can potentially fit right into that equation.
Instead of trusting in one entity, bank, or national government, you’re placing your trust in the security of a peer-validated, open log of transactions.
The Privacy of Cryptocurrencies
Part of the appeal of a cryptocurrency is its privacy. Since cryptocurrencies are decentralized, there is a ledger of all spending, records, and balances in order for them to function. However, this ledger isn’t open to the public in full, nor is it revealing on a personal level.
This appeals to those who wish to keep their financial transactions out of public view, including people from all walks of life who value their anonymity and financial privacy.
For example, it would become a matter of public record if you were to purchase a large piece of commercial land. Even if you purchased the land under the name of a shell corporation, it could still be traced back to you.
If a cryptocurrency is used to purchase that same piece of commercial land, it becomes much harder to determine who made the purchase. Anyone with a strong desire for privacy will probably be interested in this aspect of cryptocurrencies.
How Blockchain Technology Fuels Cryptocurrencies
Cryptocurrencies couldn’t exist, at least not in the way that we know them today, without the help of blockchain technology. Every time a verified transaction occurs, the data is combined with the data of other transactions to form a block of data.
This block gets added to an existing blockchain, which can’t be altered in any way. This blockchain is permanent, and it is the foundation for the possibility of any cryptocurrency.
Even those who argue against the idea of high-value cryptocurrencies can agree that blockchain technology is changing the world. This method of storing data for all time, without the possibility of change or permutation, increases security.
No one entity can disrupt the data, and it can be built on for the foreseeable future. Thus, the future of blockchain technology is incredibly bright.
The Future of Cryptocurrencies
While there are different views of the appeal and long-term value of cryptocurrencies, many consider them to be the currency of the future. Cryptocurrencies are gaining momentum, and it is easy to see their appeal.
Many individuals and investors around the world are drawn to the advantages of cryptocurrencies. Expect to hear much more about this topic in the foreseeable future.
If you are interested in the diversification and security of your financial holdings, then contact Caye International Bank today for help and guidance.