When we buy or sell things, the payment is usually processed by banks or a credit card company. But the problems with this process is that the companies often take a cut of the transactions and we have to trust these companies to protect our data from hackers.
To solve these problems, a unique currency was introduced that guarantees security by being based on the science of cryptography – a math-based way of protecting information. This type of currency is called a cryptocurrency and only exists in computer networks.
Simply put, its digital money that’s instant, private, and free from bank fees.
– What it means to own cryptocurrencies?
When you send the special currency, the money goes directly to the receiver, without involving any middlemen. And at the same time, the transaction is broadcast to the entire network and recorded permanently, which means it is impossible to fool the system.
The costs of making payments are lower and the transactions are faster especially across countries, and even those people across the globe who don’t have banks accounts, can buy or sell goods and participate in the global economy.
Risks of using digital currency
However, there are some risks of using cryptocurrency. The transaction in most cryptocurrencies are anonymous and some cryptocurrencies can even be untraceable. This can make it easier for the “bad guys” to make payments without being noticed.
At the moment, also cryptocurrencies are highly volatile. Also they can’t process large amounts of transaction quickly just yet, and are not even widely accepted.
The authorities all over the world are worried about the cryptocurrencies’ appeal to the traders of illegal goods and services and moreover, they are worried about their use in money laundering and tax evasion schemes.
– Nik Patel, cryptocurrency analyst
Although cryptocurrencies have seen huge gains since its inception more than a decade ago, there’s also been plenty of volatility along the way. After reaching nearly $20,000 back in late 2017, bitcoin suffered yet another drop of more than 80 per cent to fall below $3,500 by early 2019.
The reason for volatility have been widely attributed to the public perception of cryptocurrencies still being quite dichotomous, and the fact that crypto has had smaller market sizes as compared to established forms of currency.