You may have heard the term cryptocurrency like nakd stock wallstreetbets being thrown around, but what are they all about? Cryptocurrency is a digital or virtual currency that uses encryption techniques to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. Cryptocurrency is an exciting innovation in fintech and you might be hearing more about it in the coming years.
In our latest post we’ll cover what research says about this new virtual form of currency, including how it impacts people’s savings and future livelihoods. We’ll also take a look at some questions about cryptocurrencies’ psychological effect on individual investors so that you can decide for yourself if it’s worth investing in this new form of digital cash.
1. What Is the Difference Between Virtual and The Real Thing?
The term virtual currency is a broad catch-all, but it’s important to understand what cryptocurrency really is. Cryptocurrency is an online or digital form of currency that exists only in cyberspace. It’s not printed like real money like the U.S. dollar or the euro, and there’s no government to back it up. Instead, cryptocurrency exists based on a public record of transactions that are made using code known as blockchain technology.
Bitcoin, Ethereum, and other cryptocurrencies are different from traditional money because they’re decentralized – they operate on digital networks independently of a central bank and governments outside the control of specific nations’ control.
2. How Does It Work?
Bitcoin was introduced in 2008 and was the first cryptocurrency that became popular. Bitcoin’s creator is a mystery, known only as Satoshi Nakamoto, who “mined” the first Bitcoins on January 9th, 2009. A cryptocurrency is created when a computer or network of computers solves complex mathematical problems through cryptography. The network maintains a public ledger called blockchain, which records all transactions made using cryptocurrency and verifies them using cryptography to ensure security and accuracy. The blockchain becomes more secure over time as multiple machines (or “miners”) verify the transaction history of prior transactions and share their findings with other machines online payments on blockchain.
The computers that maintain the blockchain are called nodes, and the people who program them are called miners. A node is a computer that’s connected to the public internet, which is constantly running but doesn’t connect to any particular computer. A node can be a personal computer, tablet or smartphone, and it can be programmed to connect with others in order to verify transactions on the network. Nodes make up a network known as the blockchain network.
3. Who’s Using It?
Interest in cryptocurrency boomed in 2017. People interested in virtual currencies are called “cryptocurrency enthusiasts,” and they include both expert investors and newcomers to the digital currency marketplace. One of the biggest reasons that people are getting interested in cryptocurrency is because of increased interest in financial freedom as a result of political and economic uncertainty. Today, there are over 1,350 cryptocurrencies that people can choose from , but the top 5 most popular ones are Bitcoin, Ethereum, Litecoin, Ripple and Dash.
4. What Is The Value of Cryptocurrency?
Cryptocurrency value rests on factors such as the number of merchants who accept it as payment, its popularity and liquidity . Today, the value of virtual currencies is found on a number of global exchanges such as Kucoin, Kraken, Finance and Coinbase. Cryptocurrency prices are stored in a digital currency known as “tokens.” The price of tokens depends on the performance of these coins against other cryptocurrencies and fiat currencies like the U.S. dollar, euros or Japanese yen.
5. Is It Legal?
Currently, cryptocurrency is legal in only four states – New York, Wyoming , Arizona and California . Bitcoin is illegal in all 50 states but is apparently legal under state law in North Carolina . The Federal Government has also recognized cryptocurrency as a commodity , not a currency .
6. What Are Some Drawbacks of Cryptocurrency?
The anonymous nature of cryptocurrency transactions is both a blessing and a curse. While you don’t have to provide any personal information when trading cryptocurrency, it does hold the potential for abuse. For example, a Russian crime syndicate has reportedly been using Bitcoin to fund its dealings , and some cryptocurrencies (such as Monero) are specifically designed to defeat transaction tracing.
7. What Does Research Say About Cryptocurrency?
While there may be risks associated with cryptocurrency, it’s important to note that several countries have started looking into accepting and regulating cryptocurrencies as legitimate forms of payment in the global economy. In October 2017, Japan recognized Bitcoin as a legal method of payment, and earlier in 2017 Mexico’s central bank announced that it was looking into creating its own cryptocurrency.
In 2013, economist Robert Shiller said that Bitcoin “is the best example of a bubble.” His argument stems from the fact that Bitcoin has no intrinsic value, and is highly volatile. This doesn’t mean that cryptocurrency isn’t valuable – just because something has no intrinsic value doesn’t mean it can’t be valuable. For example, in the 1990s many people saw Beanie Babies as an investment opportunity despite their lack of concrete utility or ability to provide future income.
