In the extensive world of finance, a new term is rapidly gaining popularity: Cryptocurrency.
If you have not yet heard of the term, cryptocurrency is a digital asset that works as a medium of exchange to secure and speed up financial transactions. The proliferation of cryptocurrency in today’s world has invoked great interest all around the world, attracting more people to enter the field and creating more opportunities for innovation. Cryptocurrencies leverage on blockchain technologies to gain high levels of transparency, immutability and decentralisation.
Bitcoin is the first blockchain-powered cryptocurrency which is still highly popular and in use. Subsequently, there are countless other cryptocurrencies created in the market, some being replicas of Bitcoin and others being forks, new currencies adapted from an existing one.
Despite the volatile nature of cryptocurrencies, demand for it continues to swell as new traders and business owners are showing interest in investing in such a currency market.
WHAT IS A CRYPTOCURRENCY MARKET?
The cryptocurrency market is the place where traders buy and sell the digital currency through the use of their respective host country’s currency. Every trader is required to have a wallet software and an account before they can purchase cryptocurrency for any exchange. With the advancement in technology, people can transfer and purchase cryptocurrencies from online exchanges, special ATMs and even through a mobile app on their smartphones.
The exchange setup procedure is very detailed and lengthy because of the need to verify your identity. Your digital currencies will be stored in a digital wallet. In the wallet, there are two ‘keys’ that you should note.
The first is the ‘private key’ that authorizes all the transactions you wish to initiate. The second is the ‘public key’ which allows users to identify your account in any transaction. During transactions, you need not disclose your identity while exchanging cryptocurrencies. This is because only your wallet ID is indicated in transactions, ensuring your privacy. Hence, others would not be able to trace any transactions you make. Every transaction is verified through cryptography, a series of mathematical algorithms that can only be solved by powerful computing. These complicated algorithms enhance the security of the system.
The public key, as its name suggests, is publicly known and essential for identification, whereas the private key is kept secret and is primarily used for encryption, authorisation and authentication.
BENEFITS AND DRAWBACKS OF CRYPTOCURRENCY
Cryptocurrencies allow for easier and more direct transfer of funds between two parties, as it eliminates the need for a third party to act as a matching middleman, such as a bank. Fund transfers are also done with minimal processing fees, which make it appealing as users can avoid paying much higher fees imposed by most financial institutions for wire transfers.
All transactions are also documented in an online ledger thanks to the blockchain technology powering the cryptocurrencies. Every single block generated must be verified, and it is almost virtually impossible to manipulate or forge any transaction. This ultimately means a minimal risk for hacking and fraudulent activity.
Furthermore, with cryptocurrency’s decentralised characteristic, one’s funds and personal information will not be made known to any government, institution or central authority.
That being said, the highly anonymous nature of cryptocurrency makes it an appealing platform for those seeking to conduct illegal activities such as tax evasion, money laundering and terrorist financing. Thankfully, most cryptocurrency advocates pride themselves in providing high anonymity and do not encourage the use of cryptocurrency transfers for such unlawful purposes. Bitcoin, for example, has turned over financial criminals to authorities for arrest and prosecution.
TO INVEST OR NOT TO INVEST?
Investing in cryptocurrency may seem daunting because of the use of new tools and unfamiliar concepts. Different exchanges deal with different cryptocurrencies and that may confuse new traders. If you are considering in investing in the crypto market, here are some considerations:
– Where is this Exchange based? (Singapore / UK / South Korea etc)
– Deposit policies, costs and methods
– Withdrawal policies and costs
– Types of trading pairs available
– Trading fees
– Current cryptocurrency prices
One common activity that traders frequently engage in the currency market is mining. In the mining process, the fastest trader to solve and decode a mathematical puzzle would gain cryptocurrency. Although the process is tedious and strict, the benefits reaped is great.
Similar to the other markets, the risks involved in making investments is evident in the cryptocurrency market. Be prepared to lose any investment made, especially during your first few months in the crypto market. Through constant investments and in-depth analysis of the market trends, you will able to gain better insights and knowledge on how to make good decisions.
“Virtual currencies, perhaps most notably bitcoin, have captured the imagination of some, struck fear among others, and confused the heck out of the rest of us.”
– Thomas Carper, US Senator
Are you the curious, the afraid, or the confused?
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Disclaimer: This article is not trading or investment advice. It is for entertainment and education purposes only. Please do your own research before investing into any digital currency.