Crypto currencies have been around for more than a decade but their popularity as a trading vehicle has recently gained notoriety. Crypto currencies are digital currencies and are not backed by a country. This lies in comparison to sovereign currencies which are backed by a central bank and are geared to handle payments throughout a specific country. Many believe there are several benefits to using crypto currencies as a vehicle for payments and as an investment because the instances of fraud are so unique.
How are Crypto Currencies Created?
Most crypto currencies do not have a centralized control which makes them an attractive investment. There is no central bank trying to manipulate the value of the currency to increase exports or spur on economic growth. Several use a ledger approach which is technology that imprints the generation of a coin and that information is never changed.
What Platform are Crypto Currencies Created On?
The process uses blockchain technology which creates a chain that only adds but never deletes. This allows coin miners to mine all the coins that are created. This public financial transaction database helps detect fraud. Cryptocurrencies use different timestamping schemes to ensure the legitimacy of the transactions added to the blockchain ledger. Bitcoin was the first crypto currency established in 2009, and since its release, there have been more than 4K alternative digital coins created.
What is Mining?
Mining of a crypto currency is the process of validating transactions. When a miner validates a transaction, they receive new cryptocurrency as payment. This helps significantly reduce transaction fees and incentivizes the additional contribution to the network.
A crypto currency is created through and initial coin offering (ICO). Similar to an initial public offering in stocks, this is a way of raising capital. Unfortunately, this process has become controversial as many startups are using this process to avoid regulation.
What Are Crypto Currencies used for and Where are They Stored?
Crypto currencies have many uses. Some are used to facilitate payments within the mainstream economy while others focus on specific types of platforms. For example, Bitcoin is the most liquid crypto currency and can be used for payments of goods and services. During 2018, even real-estate was bought and sold using bitcoin. Ether is a currency used on the Ethereum platform. The currency provides access to a platform that is used globally.
A cryptocurrency is stored in a wallet which has both private and public keys that are used as address. You can transfer digital currency using these keys which enables you to pay for items. With the public key, others can send currency to the wallet. With the private key, it is possible to write in the public ledger, which allows you to spend crypto currency. When you transact with bitcoin, you are anonymous. Bitcoin owners are unidentified when transacting but the transactions can be viewed on the blockchain.
Crypto currencies are traded against other sovereign currencies like the dollar or the Euro, as well as against other crypto currencies. The attractiveness changes as new information becomes available regarding the use of these coins. Many traders also use technical analysis to provide them with a guide regarding future prices changes.