Reviewed by Komal | Updated on Jul 18, 2022


Introduction on Cryptocurrency

A cryptocurrency is a digital currency created to serve as a medium of exchange and uses cryptography to secure financial transactions.

Instead of using a centralised digital currency and central banking system, cryptocurrencies maintain a decentralised control. The decentralised control of each cryptocurrency works through distributed ledger technology, typically a blockchain, that serves as a public financial transaction database. The decentralised structure allows them to exist outside the governments control.

Bitcoin is considered as the first decentralised cryptocurrency; it was originally released as open-source software in 2009 by an individual or group known by the alias ""Satoshi Nakamoto.”. Since Bitcoins release, over 4,000 alternative variants of bitcoin, or other cryptocurrencies have been introduced. It still remains the most popular and the most valuable among others.

Understanding Cryptocurrency

Cryptocurrencies are ways that allow for the secure payments online which are titled in terms of virtual ""tokens,"" which are depicted by ledger entries internal to the system. ""Crypto"" refers to the various encryption algorithms and cryptographic techniques that safeguard these entries, such as elliptical curve encryption, public-private key pairs, and hashing functions.

Factors to consider before you invest

One should understand the advantages and disadvantages of cryptocurrency before investing or buying them:

Advantages of Cryptocurrency It holds a promise of seamless and easier transfer of funds directly between two parties, without the need for a trusted third party like a bank, financial institution or a credit card company. The transfers are secured by the use of the private and public keys and different forms of incentive systems.

The users wallet or the account address has the public key and the private key is only known to the owner and is used to sign transactions.

The transfers are completed with a minimal processing fee, allowing the user to avoid the higher fees charged by the banks for transfers.

Disadvantages of Cryptocurrency The decentralised structure of cryptocurrency transactions makes them well suited for illegal activities like tax evasion or money laundering.

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