Cryptocurrencies are a complicated concept, and with the introduction of every new technology comes an entirely new set of terms and buzzwords. These terms are critical for investors to know should they wish to invest in cryptocurrencies.
Cryptocurrency is a digital currency with a cryptographic security system. Bitcoin, the most prominent cryptocurrency, uses blockchain technology for its security, which is widely known to be extremely difficult to manipulate.
The data structuring that gives bitcoin its high level of security is called blockchain. It is a fluid, ever-growing chain of data spread across a vast network of computers with no central authority. The information stored in each block is regularly checked by its neighboring blocks. This means no individual is able to corrupt the data, as the system is constantly checking in on itself.
Smart Contracts are self-executing contracts that eliminate the need for a middleman, effectively speeding up transaction processes. Smart contracts allow for the exchange of money, investments and anything of value through a transparent, fast-acting medium.
A major reason why bitcoin and blockchain technologies are trending is due to tokenization. This replaces sensitive data, such as credit card information, with a randomly generated number that holds no value. It’s a strong security feature that removes vulnerable data from information systems and substitutes it with an unhackable token to store the data securely.
Recording transactions on the blockchain is called mining. Since bitcoin has no central authority, it needs a system to verify transactions to prevent fraud. Bitcoin miners use strong computers and special programs to solve complex math problems to validate previous transactions (payments from one user to another on a decentralized network). Whenever a block is verified, the miner who solved it is rewarded with a predetermined amount of bitcoin, which motivates people to continuously keep the blockchain secure.
Simply put, it is a currency that is officially declared by a government to be its legal tender. It gets its value from supply and demand rather than the physical material of which it consists.
While it is currently possible to invest in bitcoin, investors need to go through unregulated platforms which are rampant with fraud. We heavily recommend waiting to invest in cryptocurrencies until there is an approved, regulated contract.