Over the last several years, cryptocurrencies have moved from the fringe to the mainstream of the financial world. As they develop a track record of success, including bouncing back from brief declines, cryptocurrencies increasingly look like a solid investment to average investors.
Additionally, the growing pool of digital-age native investors have more comfort with non-traditional strategies.
Intrigued, but hesitant, to invest in cryptocurrencies because you have not heard much about them? Check out our short guide to what you may not know about them.
What Are Cryptocurrencies?
Cryptocurrencies are Internet-based mediums of exchange using cryptographical programs to create and assign value. Additionally, they enjoy the full faith and credit of a broad base of users which include individuals, corporations and even governments.
These forms of currency also offer a number of advantages to users and investors. Networks are safeguarded by blockchain technology. Records are completely resistant to tampering, corruption or manipulation.
Where Do Cryptocurrencies Get Their Value?
The base of cryptocurrency value in many cases, but not all, comes from the solving of complex mathematical problems during the mining process. Value is earned as opposed to assigned.
Their utility and value come from their use of self-sustaining platforms of exchanging, verifying and recording transactions.
Cryptocurrencies do not have government backing, although some agencies can accept transactions in it. Financial institutions and a large and growing number of everyday investors and users agree that it has value, giving it legitimacy on the world market.
One important advantage of cryptocurrency value comes from the fact that it operates completely in the market. It responds only to free-moving economic patterns and is never affected by direct government manipulation anywhere.
Why Are Cryptocurrency Transactions Not Always Anonymous?
Cryptocurrencies do operate online and offer privacy protections for users. Investment does not usually require an identification number or even a bank account.
That said, cryptocurrencies with widespread use in the United States will remain subject to the Internal Revenue Service. Courts have allowed the IRS to access certain transaction records in tax cheat investigations. This indicates that no one should consider any cryptocurrency transaction to be permanently anonymous.
That said, the use of blockchain technology to handle central cryptocurrency ledgers means that it remains safe against cybercriminals, terrorists and rogue regimes.
What Does Decentralized Currency Mean?
Traditional currencies are considered centralized. Today, governments themselves generally manage and back currencies. In the 1800s, American banks themselves had the authority to issue currency. In this case, the bank served as the managing authority.
Cryptocurrencies have no central management, only a protected ledger of transactions. Each transaction has a unique digital signature and a time stamp. This activates public and private keys to make the transaction legitimate.
All transactions then get encased in a digital block which gets added to the ledger chain.
Since no managing authority controls cryptocurrencies, they react more naturally to market conditions.
Are There Other Cryptocurrencies Than Bitcoin?
Believe it or not, almost 3,000 separate cryptocurrencies currently operate. Experts advise that those interested in investing in them research carefully, especially before buying a less known type. Bitcoin serves as the top cryptocurrency in the world, but several others share good track records for investment as well.
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