The Basics about
CRYPTOCURRENCY
Cryptocurrency comes under many names. You have probably read about some of the most popular types of cryptocurrencies such as Bitcoin, Litecoin, and Ethereum. Cryptocurrencies are increasingly popular alternatives for online payments. Before converting real dollars, euros, pounds, or other traditional currencies into ₿ (the symbol for Bitcoin, the most popular cryptocurrency), you should understand what cryptocurrencies are, what the risks are in using cryptocurrencies, and how to protect your investment.
What is cryptocurrency?
A cryptocurrency is a digital currency, which is an alternative form of pay created using encryption algorithms. The use of encryption technologies means that cryptocurrencies function both as a currency and as a virtual accounting system. To use cryptocurrencies, you need a cryptocurrency wallet. These wallets can be software that is a cloud-based service or is stored on your computer or on your mobile device. The wallets are the tool through which you store your encryption keys that confirm your identity and link to your cryptocurrency.
How does cryptocurrency work?
Cryptocurrencies run on a distributed public ledger called blockchain, a record of all transactions updated and held by currency holders.
Units of cryptocurrency are created through a process called mining, which involves using computer power to solve complicated mathematical problems that generate coins. Users can also buy the currencies from brokers, then store and spend them using cryptographic wallets
If you own cryptocurrency, you don’t own anything tangible. What you own is a key that allows you to move a record or a unit of measure from one person to another without a trusted third party.
Although Bitcoin has been around since 2009, cryptocurrencies and applications of blockchain technology are still emerging in financial terms, and more uses are expected in the future. Transactions including bonds, stocks, and other financial assets could eventually be traded using the technology.
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 cites XRP as a faster, cheaper, and more energy-efficient digital asset that can process transactions within seconds and consume less energy than some counterpart cryptocurrencies
What are the risks to using cryptocurrency?
Cryptocurrencies are still relatively new, and the market for these digital currencies is very volatile. Since cryptocurrencies don't need banks or any other third party to regulate them; they tend to be uninsured and are hard to convert into a form of tangible currency (such as US dollars or euros.) In addition, since cryptocurrencies are technology-based intangible assets, they can be hacked like any other intangible technology asset. Finally, since you store your cryptocurrencies in a digital wallet, if you lose your wallet (or access to it or to wallet backups), you have lost your entire cryptocurrency investment.
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.
Follow these tips to protect your cryptocurrencies: