It’s a currency associated with the Internet that uses cryptography, the process of converting readable information into a nearly unbreakable code, to track purchases and transfers.
Cryptography grew out of the need for secure communication, but it has evolved in the digital age with elements of mathematical theory and computer science to become a means of securing communications, information and money online.
The first cryptocurrency was Bitcoin, which was created in 2009 and is still the best known. There has been a proliferation of cryptocurrencies over the past decade and there are now thousands available on the internet, but Bitcoin remains the most well-known. It has climbed this year to over $ 40,000 – around £ 29,000 – per digital coin, although it remains highly volatile.
Here’s everything you need to know about cryptocurrencies.
How do cryptocurrencies work?
Cryptocurrencies use decentralized technology to allow users to make secure payments and store money without needing to use their name or go through a bank. They operate on a distributed public ledger called a blockchain, which is a record of all transactions updated and held by currency holders.
Cryptocurrency units are created through a process called mining, which involves using computer power to solve complex mathematical problems that generate coins. Users can also buy currencies from brokers, then store and spend them using crypto wallets.
Cryptocurrencies and applications of blockchain technology are still emerging in financial terms and more uses are to be expected. Transactions involving bonds, stocks and other financial assets could potentially be traded using technology.
Why would you use cryptocurrency?
Cryptocurrencies are known to be secure and provide a level of anonymity. Transactions cannot be tampered with or canceled and fees are generally low. Their decentralized nature means they are accessible to everyone, although they can be complicated to set up and few stores accept them for spending.
Perhaps the most popular use of cryptocurrency is for speculative investing, with users buying the coins in the hope that they will rise in value, or that one day could be useful as an alternative to traditional currencies.
The volatile price of Bitcoin has led to sudden spikes in interest as its value increases. This has resulted in an increase in the number of professional and amateur speculators investing in bitcoin and other cryptocurrencies, seeing them either as a quick way to generate returns or as part of an investment portfolio.
