Crypto is a digital asset designed to work as a medium of exchange that uses cryptography to secure its transactions, to control the creation of additional units, and to verify the transfer of assets.
Crypto currencies are decentralized, meaning they are not subject to government or financial institution control. Bitcoin, the first and most well-known cryptocurrency, was created in 2009. Cryptocurrencies are often traded on decentralized exchanges and can also be used to purchase goods and services.
Cryptocurrencies use blockchain technology to record transactions on a public ledger. Blockchain is a distributed database which allows for secure, transparent and tamper-proof recordkeeping. Bitcoin’s blockchain is powered by a network of computers known as miners. Miners confirm each transaction by solving complex mathematical equations and then add the transaction to the blockchain.
By design, blockchains are resistant to modification of the data. Once a transaction is added to the blockchain it is incredibly difficult to change or remove it. This makes it ideal for use as a secure and transparent way of conducting transactions.Cryptocurrencies are often traded on decentralized exchanges.
A decentralized exchange is a service which does not rely on a central authority or third party service to match trades. Decentralized exchanges are powered by software that runs on a blockchain network. The most well-known decentralized exchange is EtherDelta, which trades Ethereum-based tokens.
Cryptocurrencies can also be used to purchase goods and services. Overstock.com was one of the first major retailers to accept Bitcoin as a method of payment. In 2014, Overstock.com partnered with Coinbase to allow customers to pay for their orders with Bitcoin. Today, there are a number of businesses that accept cryptocurrencies as a form of payment, including Microsoft, Expedia and Newegg. Cryptocurrencies are often held in digital wallets.
A digital wallet is a software program that stores private and public keys and interacts with many blockchains to enable users to send, receive or store crypto assets and monitor the balance. Some digital wallets also allow users to buy and sell crypto. The most popular cryptocurrency wallet is Coinbase Wallet, which is offered by the cryptocurrency exchange Coinbase. Crypto exchanges are platforms where you can buy, sell or trade cryptocurrencies for other digital assets or fiat currencies.
Coinbase is the most well-known cryptocurrency exchange, allowing users to buy & sell Bitcoin, Ethereum, Litecoin and other cryptocurrencies. Crypto exchanges are unregulated and therefore subject to little oversight from government agencies. This makes them a target for different types of hackers and cybercriminals. In 2014, Mt. Gox, a Japanese cryptocurrency exchange, filed for bankruptcy after losing 850,000 Bitcoins to hackers. In 2018, Coincheck, another Japanese cryptocurrency exchange, lost $534 million worth of NEM tokens to hackers.
Cryptocurrencies are often used for illegal activities because they are difficult to trace and offer anonymity to users. In 2016, the FBI shut down the Silk Road marketplace and seized 144,000 Bitcoins worth $28.5 million. The Silk Road was an online marketplace that allowed users to buy or sell illegal drugs and other contraband anonymously.
Cryptocurrencies have also been used to finance terrorist organizations such as ISIS. In 2015, the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued guidance stating that digital currencies are considered money transmitters and subject to the same anti-money laundering regulations as other financial institutions.
Cryptocurrencies are a new and innovative way of conducting transactions, but they come with a number of risks. Investing in cryptocurrencies is speculative and risky, and you should always consult with a financial advisor before making any investment decisions.