Cryptocurrency. Just enough to get U in trouble. (Part 1)
What is it? Is it a good investment? How can I buy it? What is it used for?
Welcome to the first installment in a new series aimed at removing some of the mystery behind cryptocurrency. This article will talk about cryptocurrencies in general, going into more details about individual currencies and tokens in the future.
Cryptocurrency refers primarily to currencies using blockchain technology to offer decentralization. Simply put (maybe too simply) these currencies are kept in a digital record book that everyone can see. Everything is secured with intense math equations even a supercomputer wouldn’t be able to crack (at least not for a long time). When you want to transfer your currency, you initiate a transfer request. This request starts a math equation must be solved by multiple different users inside the blockchain.
With centralized banking (just your regular ol bank), the bank controls your money. If you want to send it somewhere or withdraw it, only the bank needs to confirm it. With a bank you place all your trust in the institution and hope they follow the agreements in place. Decentralized currencies follow coded protocols.
There are many cryptos. Most people have heard of bitcoin. Many have heard of other major ones such as Ethereum, Litecoin, Monero, or Ripple. To date there are thousands of cryptocurrencies and tokens. They have various uses, not always just a store of value.
Cryptocurrency has many pros and cons, to list a few:
Pros:
-Less regulation: No limits. You can send as much currency as you want to whoever you want in any country. No spending, withdrawal, or deposit limits.
-Value is not tied to a single nation’s economy. Even if all the banks in a country were to fail, your currency would be safe in your digital wallet.
-The expectation of value increase.
-Transparency. Public ledgers and white papers
Cons:
-Safeguards are nearly nonexistent. If funds are compromised, there is no FDIC insuring your money. Transfer mistakes cannot be undone. If you send funds to the wrong wallet or send the incorrect amount there is no recovery.
-Volatility. Apart from tethered currencies, Cryptos are not backed by physical stores of value such as gold or cash. Their value comes from demand and use cases. This coupled with lack regulatory bodies makes them vulnerable to market manipulation and scams.
-Complicated and varied wallet setups, transfers, and methods to convert fiat to cryptocurrencies.
Check back for part 2
If I can understand something, so can you.