Put simply, cryptocurrencies are digital currencies. On one hand, they are used for speculative purposes, but, on the other, more and more providers are accepting cryptocurrencies (mainly Bitcoin) as a method of payment. However, Bitcoin is far from the only cryptocurrency. Have you ever heard of Ether or Litecoin, for example? New cryptocurrencies are being launched on the market almost every day. Do some thorough research on such currencies before buying them.
What are cryptocurrencies?
You will almost certainly have heard or read about them. Or have you even thought about buying cryptocurrencies yourself? In any event, it is well worth finding out more about them.
How cryptocurrencies differ
Bitcoin, the most well-known cryptocurrency, is also the most commonplace and the one with the highest market capitalization. The concept behind Bitcoin was to create an independent financial system in which payments could be made inexpensively, quickly and transparently – Bitcoin is therefore designed as a currency. In contrast, Ethereum, a Bitcoin competitor and the issuer of Ether, was conceived as an online platform to establish a new structure for the Internet and a new type of payment transaction. In addition to Ether and Bitcoin, there are now over 800 other cryptocurrencies.
Cryptocurrencies compared with “traditional money”
A cryptocurrency only exists digitally, there is no cash. There is no central bank behind cryptocurrencies as there is for conventional currencies, such as the Swiss franc. Its rate reflects the strength of the Swiss economy and general confidence in Switzerland. The value of a cryptocurrency is based solely on current demand and is very volatile. The value of Bitcoin, for example, can rise or fall by over 10% or several thousand Swiss francs in a single day. Cryptocurrencies sometimes also present significant risk of fraud. The regulations cannot be compared with those governing conventional currencies either. The issuers of cryptocurrencies are not necessarily subject to supervision, for example.
Transactions in cryptocurrencies
No bank is required to transfer cryptocurrency. The sender can transfer the money directly to the recipient digitally without passing through an intermediary. The transactions are logged in a blockchain. Have you ever heard of this technology in relation to cryptocurrencies? It’s a kind of decentralized, virtual record of costs. A blockchain consists of a potentially infinitely long chain of codes which become longer with each transaction. As there is decentralized storage of codes in every case, the purchases or transfers can always be traced transparently and with great precision. However, the people behind the transactions remain anonymous.