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What is a Cryptocurrency? And how safe are they?

Illustration of a wallet overflowing with various cryptocurrencies including Bitcoin and Ethereum

What is a Cryptocurrency?

A Cryptocurrency is a digital currency that does not depend on banks for verifying transactions. It works peer-to-peer which means transactions are sent directly from user to user without the involvement of a bank or middleman. Anybody, regardless of location, can make and receive transactions. Cryptocurrencies only exist in digital form. When a cryptocurrency is transferred, the transaction is recorded on a public ledger.

How they use Blockchain Technology

Despite the fact that there are thousands of cryptocurrencies, the majority of them operate in a similar fashion. They utilise Blockchain technology as a way to store transactions on a public ledger. Computers from across the globe (also known as nodes) store and maintain copies of the Blockchain.

Blocks are basically a collection of transactions. Each Block is only added to the Blockchain once it has been authenticated by the host of nodes in the network. People refer to Blockchains as "immutable" because once a block has been added, it cannot be undone or changed.

Some cryptos have their own Blockchain. The Bitcoin and Ethereum Blockchains are two examples. But there are other cryptocurrencies that are created on an existing blockchain as opposed to beginning from scratch. For example, Axie infinity's coin exists on the Ethererum network.

Additionally, cryptocurrencies possess another distinguishing characteristic. The blockchains are public ledgers, which implies that all transactions can be seen by anyone.

Decentralisation of Blockchains

Cryptocurrencies are distinguishable from fiat currencies such as the US dollar by the fact that they are neither issued or backed by a government. In reality, no one individual, organisation, or country owns a cryptocurrency's Blockchain. They are instead managed by a global network of decentralised computers.

Are Cryptocurrencies secure?

The word 'crypto' is derived from Cryptography, the technique that is used to keep blockchains secure. This uses mathematical and computational practices for encoding and decoding data. Once applied, cryptocurrency data can be stored and transmited between wallets and to public ledgers safely. Until now, no major Blockchain has ever been hacked so this should tell you how secure cryptocurrencies are.

Nonetheless, you should still be concerned about security. Scams are rife in the cryptocurrency industry, just as they are in conventional financial systems like banking and credit cards. So make sure you never share your Private Key or anything private with anyone online.

If you have any questions or would like more information, please feel free to contact us via our contact form, or you may schedule an appointment with one of our experts through our booking page.


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