A Cryptocurrency, or crypto-currency, is an electronic currency designed to function like a traditional medium of exchange where personal coin ownership information is recorded in a public ledger, also known as a database, maintained in a semi-decentralized form of a peer-to-peer internet network. A Cryptocurrency can be traded like traditional currencies using a software platform that allows for real-time settlements between buyers and sellers of cryptos. In the last few years, the use of Cryptocurrencies have seen exponential growth and applications across a range of industries. It is commonly used as payment method by online stores, e-commerce websites, merchant accounts, online casinos, payment gateways and even in mobile devices like smart phones and net books.
As with any other system of money, the Cryptocurrency has inherent risks of fraud, hacking, theft, misuse and fraud. However, in comparison to traditional systems, the degree of damage that may be caused by a malicious attack on Cryptocurrencies is relatively low. In addition to this, there is a significant technological improvement that is underway in order to make Cryptocurrencies more secure. Currently, most Cryptocurrencies are backed by a fraction of one percent of assets that are held in reserve as a result of speculative value created through derivatives, which are not directly available to the public.
Another feature of Cryptocurrencies is that there is no physical storage of these currencies because they are all stored on a distributed database. The database is considered to be a distributed database because it is hosted across a number of computers. Each user will have access to their own virtual copy of the database. The major benefit of Cryptocurrencies use as a medium of exchange is the ability to transfer money quickly and easily from one owner to another.
One major disadvantage of Cryptocurrencies use as a means of payment is that it lacks the ability to hold large sums of money. This is because it does not allow the use of any central banks. Due to this feature, many people have suggested that Cryptocurrencies use as a way of storing wealth is somewhat dangerous. Because the majority of Cryptocurrencies users are located in places where access to central banks is limited, many people believe that their value will fluctuate wildly if there is a sudden breakdown of government spending.
Because there is no central bank to regulate the supply of Cryptocurrencies, the current supply can never be predicted. There are two theories that explain how Cryptocurrencies could end up being issued: either there will be an overflow of new buyers who elect to pay the existing supply or there will be an internal breakdown of the Cryptocurrency ledger. Even with the overwhelming amount of supply that is present currently available, there is still room for an overflow. With an overflow of new buyers, the supply will be increased causing the price of Cryptocurrencies to increase above their inherent value. As previously mentioned, if there is an internal breakdown of the ledger, the value of Cryptocurrencies will decrease drastically.
Many people believe that the best way to gain exposure to Cryptocurrencies is to purchase them and then wait for the market to determine their value. However, because there is no centralised body to which the supply can be controlled, if the value of Cryptocurrencies ever drops below the new rate, the value of the entire holder will immediately decrease. This will result in an immediate loss of funds for the person who had previously invested in new cryptocurrency units. For this reason, investing in Cryptocurrencies should be treated as a high risk high reward investment, and only one person should own a significant amount of these new units.