What Exactly Are Cryptocurrencies?

Cryptocurrencies are the latest trend in Millennial investing. We have all seen Elon Musk’s active twitter account and the comments from institutional investors that “bitcoin is the digital gold” of this generation. However, what exactly are cryptocurrencies? What do they do? For beginners out there, here is a quick summary of what this new asset class is all about.

Blockchain

Cryptocurrencies are essentially digital or virtual currencies that are secured by cryptography, which makes it impossible for transactions to be forged or counterfeited. Many cryptocurrencies are based on decentralised networks created from blockchain technology. Blockchain technology is created by codes that distribute copies of a digital “ledger” to every single computer that is connected on the network. All of the networks verify transactions that pass through the blockchain.

Why Are Cryptocurrencies Useful?

There are several reasons. First, they are decentralised and not controlled by any bank or government. This makes them immune to government manipulation. Secondly, anyone can send money to another person without worrying about their identity being revealed. These transfers are secured by private keys and are sent directly to wallets which are anonymous, making cryptocurrencies even more attractive to people who want to preserve their online identities during transactions.

Criticism

The decentralised nature of cryptocurrencies means that it faces several criticisms. Some people argue that the system can be used for money laundering or other illegal activities as criminals can transfer large amounts of money to anonymous wallets for storage. Others have argued that the high transaction fees and slow speeds of some cryptocurrencies such as Ethereum make them virtually unusable and scalable for everyday life.

Regardless, it is undeniable that cryptocurrencies are increasingly popular amongst investors and citizens around the world who see potential for this innovative technology to change the world, hedging against inflation and facilitating the exchange of money outside the influence of central banks and governments.