What is Cryptocurrency? । Cryptography । Digital Currency ।

Cryptocurrency,
sometimes known as crypto-currency or crypto, is any type of digital or virtual
currency that employs encryption to safeguard transactions. Cryptocurrencies
lack a central issuing or regulating body and instead rely on a decentralized
system to record transactions and issue new units.

What is Cryptocurrency?

 

The
term “cryptocurrency” refers to the use of encryption to verify
transactions. This means that specialised coding is required in order to store
and transport bitcoin data between wallets and to public ledgers. Encryption’s
goal is to ensure security and safety.

Bitcoin
was the first cryptocurrency, and it is still the most well-known today. Much
of the interest in cryptocurrencies is speculative, with speculators
occasionally sending prices stratospheric.

 

How does cryptocurrency work?

Cryptocurrencies
are based on blockchain, a distributed public ledger that keeps track of all
transactions that are updated and maintained by currency holders.

 

Mining
is a technique that uses computer power to solve complex mathematical problems
that earn coins to construct cryptocurrency units. Users can also purchase the
currencies from brokers before storing and using them in encrypted wallets.

 

You
don’t possess anything concrete if you hold bitcoin. What you have is a key
that allows you to transfer a record or a unit of measurement from one person
to another without the assistance of a trusted third party.

 

Although
Bitcoin has been present since 2009, cryptocurrencies and blockchain technology
applications are still emerging in financial terms, with additional usage
planned in the future. The technology might someday be used to trade bonds,
equities, and other financial assets. 

 

Cryptocurrency examples:

There are thousands of
cryptocurrencies. Some of the best known include:

Bitcoin:

Founded in 2009, Bitcoin
was the first cryptocurrency and is still the most commonly traded. The
currency was developed by Satoshi Nakamoto – widely believed to be a pseudonym
for an individual or group of people whose precise identity remains unknown.

Ethereum:

Developed in 2015,
Ethereum is a blockchain platform with its own cryptocurrency, called Ether
(ETH) or Ethereum. It is the most popular cryptocurrency after Bitcoin.

Litecoin:

This currency is most
similar to bitcoin but has moved more quickly to develop new innovations,
including faster payments and processes to allow more transactions.

Ripple:

Ripple is a distributed
ledger system that was founded in 2012. Ripple can be used to track different
kinds of transactions, not just cryptocurrency. The company behind it has
worked with various banks and financial institutions.

Non-Bitcoin
cryptocurrencies are collectively known as “altcoins” to distinguish them from
the original.

How
to buy cryptocurrency:

You may be wondering how
to buy cryptocurrency safely. There are typically three steps involved. These
are:

Step 1: Choosing a platform

The first step is
deciding which platform to use. Generally, you can choose between a traditional
broker or dedicated cryptocurrency exchange:

·        
Traditional brokers. These are online brokers who offer
ways to buy and sell cryptocurrency, as well as other financial assets
like stocks, bonds, and ETFs. These platforms tend to offer
lower trading costs but fewer crypto features.

·        
Cryptocurrency exchanges. There are many
cryptocurrency exchanges to choose from, each offering different
cryptocurrencies, wallet storage, interest-bearing account options, and more.
Many exchanges charge asset-based fees.

When comparing different
platforms, consider which cryptocurrencies are on offer, what fees they charge,
their security features, storage and withdrawal options, and any educational
resources.

Step 2:
Funding your account

Once you have chosen your
platform, the next step is to fund your account so you can begin trading. Most
crypto exchanges allow users to purchase crypto using fiat (i.e.,
government-issued) currencies such as the US Dollar, the British Pound, or the
Euro using their debit or credit cards – although this varies by platform.

Crypto purchases with
credit cards are considered risky, and some exchanges don’t support them.
Some credit card companies don’t allow crypto transactions either. This is
because cryptocurrencies are highly volatile, and it is not advisable to
risk going into debt — or potentially paying high credit card transaction fees
— for certain assets.

Some platforms will also
accept ACH transfers and wire transfers. The accepted payment methods and time
taken for deposits or withdrawals differ per platform. Equally, the time taken
for deposits to clear varies by payment method.

An important factor to
consider is fees. These include potential deposit and withdrawal transaction
fees plus trading fees. Fees will vary by payment method and platform, which is
something to research at the outset.

Step 3:
Placing an order

You can place an order
via your broker’s or exchange’s web or mobile platform. If you are planning to
buy cryptocurrencies, you can do so by selecting “buy,” choosing the
order type, entering the amount of cryptocurrencies you want to purchase, and
confirming the order. The same process applies to “sell” orders.

There are also other ways to invest in crypto. These include
payment services like PayPal, Cash App, and Venmo, which allow users to buy,
sell, or hold cryptocurrencies. In addition, there are the following investment
vehicles:

·        
Bitcoin trusts: You can buy shares of Bitcoin trusts
with a regular brokerage account. These vehicles give retail investors exposure
to crypto through the stock market. 

·        
Bitcoin mutual funds: There are Bitcoin ETFs
and Bitcoin mutual funds to choose from. 

·        
Blockchain stocks or ETFs: You can also indirectly
invest in crypto through blockchain companies that specialize in the technology
behind crypto and crypto transactions. Alternatively, you can buy stocks or
ETFs of companies that use blockchain technology.

The best option for you
will depend on your investment goals and risk appetite.

How
to store cryptocurrency:

 Once you have purchased
cryptocurrency, you need to store it safely to protect it from hacks or theft.
Usually, cryptocurrency is stored in crypto wallets, which are physical devices
or online software used to store the private keys to your cryptocurrencies
securely. Some exchanges provide wallet services, making it easy for you to
store directly through the platform. However, not all exchanges or brokers
automatically provide wallet services for you.

There are different
wallet providers to choose from. The terms “hot wallet” and “cold wallet”
are used:

·        
Hot wallet storage: “hot wallets” refer to
crypto storage that uses online software to protect the private keys to your
assets.

·        
Cold wallet storage: Unlike hot wallets, cold wallets
(also known as hardware wallets) rely on offline electronic devices to securely
store your private keys.

Typically, cold wallets
tend to charge fees, while hot wallets don’t.

What can you buy with
cryptocurrency?

When
it was first launched, Bitcoin was intended to be a medium for daily
transactions, making it possible to buy everything from a cup of coffee to a
computer or even big-ticket items like real estate. That hasn’t quite
materialized and, while the number of institutions accepting cryptocurrencies
is growing, large transactions involving it are rare. Even so, it is possible
to buy a wide variety of products from e-commerce websites using crypto. Here
are some examples:

Technology and e-commerce
sites:

Several
companies that sell tech products accept crypto on their websites, such as
newegg.com, AT&T, and Microsoft. Overstock, an e-commerce platform, was
among the first sites to accept Bitcoin. Shopify, Rakuten, and Home Depot also
accept it.

Luxury goods:

Some
luxury retailers accept crypto as a form of payment. For example, online luxury
retailer Bitdials offers Rolex, Patek Philippe, and other high-end watches in
return for Bitcoin.

Cars:

Some
car dealers – from mass-market brands to high-end luxury dealers – already
accept cryptocurrency as payment.

Insurance:

In April 2021, Swiss
insurer AXA announced that it had
begun accepting Bitcoin as a mode of payment for all its lines
of insurance except life insurance (due to regulatory issues). Premier Shield
Insurance, which sells home and auto insurance policies in the US, also accepts
Bitcoin for premium payments.

If
you want to spend cryptocurrency at a retailer that doesn’t accept it directly,
you can use a cryptocurrency debit card, such as BitPay in the US.

Cryptocurrency fraud and
cryptocurrency scams

Unfortunately,
cryptocurrency crime is on the rise. Cryptocurrency scams include:

Fake websites: Bogus sites which
feature fake testimonials and crypto jargon promising massive, guaranteed
returns, provided you keep investing.

Virtual Ponzi
schemes: Cryptocurrency
criminals promote non-existent opportunities to invest in digital currencies
and create the illusion of huge returns by paying off old investors with new
investors’ money. One scam operation, BitClub Network, raised more than $700
million before its perpetrators were indicted in December
2019.

“Celebrity”
endorsements: Scammers pose online as
billionaires or well-known names who promise to multiply your investment in a
virtual currency but instead steal what you send. They may also use messaging
apps or chat rooms to start rumours that a famous businessperson is backing a
specific cryptocurrency. Once they have encouraged investors to buy and driven
up the price, the scammers sell their stake, and the currency reduces in value.

Romance scams: The FBI warns of a
trend in online dating scams, where tricksters
persuade people they meet on dating apps or social media to invest or trade in
virtual currencies. The FBI’s Internet Crime Complaint Centre fielded more than
1,800 reports of crypto-focused romance scams in the first seven months of
2021, with losses reaching $133 million.

Otherwise,
fraudsters may pose as legitimate virtual currency traders or set up bogus
exchanges to trick people into giving them money. Another crypto scam involves
fraudulent sales pitches for individual retirement accounts in
cryptocurrencies. Then there is straightforward cryptocurrency hacking, where
criminals break into the digital wallets where people store their virtual
currency to steal it.

Is cryptocurrency safe?

Cryptocurrencies
are usually built using blockchain technology. Blockchain describes the way
transactions are recorded into “blocks” and time stamped. It’s a
fairly complex, technical process, but the result is a digital ledger of
cryptocurrency transactions that’s hard for hackers to tamper with.

In
addition, transactions require a two-factor authentication process. For
instance, you might be asked to enter a username and password to start a
transaction. Then, you might have to enter an authentication code sent via text
to your personal cell phone.

While securities are in
place, that does not mean cryptocurrencies are un-hackable. Several high-dollar
hacks have cost cryptocurrency start-ups heavily. Hackers hit Coincheck to the
tune of $534 million and BitGrail for $195 million, making them two of the biggest
cryptocurrency hacks of 2018.

Unlike
government-backed money, the value of virtual currencies is driven entirely by
supply and demand. This can create wild swings that produce significant gains
for investors or big losses. And cryptocurrency investments are subject to far
less regulatory protection than traditional financial products like stocks,
bonds, and mutual funds.

Four tips to invest in
cryptocurrency safely

According
to Consumer Reports, all investments carry risk, but some experts consider
cryptocurrency to be one of the riskier investment choices out there. If you
are planning to invest in cryptocurrencies, these tips can help you make
educated choices.

Research exchanges:

Before
you invest, learn about cryptocurrency exchanges. It’s estimated that there are
over 500 exchanges to choose from. Do your research, read reviews, and talk
with more experienced investors before moving forward.

Know how to store your
digital currency:

If
you buy cryptocurrency, you have to store it. You can keep it on an exchange or
in a digital wallet. While there are different kinds of wallets, each has its
benefits, technical requirements, and security. As with exchanges, you should
investigate your storage choices before investing.

Diversify your
investments:

Diversification
is key to any good investment strategy, and this holds true when you are
investing in cryptocurrency. Don’t put all your money in Bitcoin, for example,
just because that’s the name you know. There are thousands of options, and it’s
better to spread your investment across several currencies.

Prepare for volatility:

The
cryptocurrency market is highly volatile, so be prepared for ups and downs. You
will see dramatic swings in prices. If your investment portfolio or mental
wellbeing can’t handle that, cryptocurrency might not be a wise choice for you.

Cryptocurrency
is all the rage right now, but remember, it is still in its relative infancy
and is considered highly speculative. Investing in something new comes with
challenges, so be prepared. If you plan to participate, do your research, and
invest conservatively to start.

One of the best ways you
can stay safe online is by using a comprehensive antivirus. Kaspersky Internet
Security defends
you from malware infections, spyware, data theft and protects your online
payments using bank-grade encryption.