Technology has changed the way people work, communicate, shop and even pay for goods. Companies and consumers don’t always prefer cash anymore, and this behavior is giving way to contactless payments like Apple Pay. With the quick wave of a smartphone, consumers can pay for items at digital registers. Now, a new payment system is emerging: cryptocurrency.
Probably everyone heard about Bitcoin by now. It was the first cryptocurrency to go mainstream, but others are growing in popularity. There are more than 2,000 different types of cryptocurrencies, and more are developed every day.
Research suggests most people have heard of cryptocurrency but don’t fully understand what it is. So, what is it, is it secure and how do you invest in it? To help, we’ll answer those questions. Think of this as Cryptocurrency Investing 101.
What Is Cryptocurrency?
Cryptocurrency is a digital payment system that doesn’t rely on banks to verify transactions. It’s a peer-to-peer system that can enable anyone anywhere to send and receive payments. Instead of being physical money that is carried around and exchanged in the real world, cryptocurrency payments exist purely as digital entries to an online database that describe specific transactions. When you transfer cryptocurrency funds, the transactions are recorded in a public ledger. You store your cryptocurrency in a digital wallet.
Cryptocurrency got its name because it uses encryption to verify transactions. This means advanced coding is involved in storing and transmitting cryptocurrency data between wallets and to public ledgers. The aim of the encryption is to provide security and safety.
How Secure Is Cryptocurrency?
Cryptocurrencies are usually built using blockchain technology. Blockchain describes the way transactions are recorded into “blocks” and time stamped. It’s a fairly complex, technical process, but the result is a digital ledger of cryptocurrency transactions that’s hard for hackers to tamper with.
In addition, transactions require a two-factor authentication process. For instance, you might be asked to enter a username and password to start a transaction. Then, you might have to enter an authentication code that’s sent via text to your personal cell phone.
While securities are in place, that doesn’t mean cryptocurrencies are un-hackable. In fact, several high-dollar hacks have cost cryptocurrency startups heavily. Hackers hit Coincheck to the tune of $534 million and BitGrail for $195 million in 2018. That made them two of the biggest cryptocurrency hacks of 2018, according to Investopedia.
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