Learn About Cryptocurrency
WHAT IS BITCOIN?
WHAT IS CRYPTOCURRENCY?
Bitcoin is arguably the best-known example of what’s called cryptocurrency. Other examples include Ethereum, Ripple and Litecoin. To understand what cryptocurrency is, let’s break the word down and examine its parts. “Crypto” comes from the fact that it uses cryptography to secure its transactions and create new units. “Currency” comes from the fact that it fulfills all five requirements of the properties of currency, namely: scarcity, fungibility, divisibility, durability and transferability.
So cryptocurrency is simply a digital form of currency. This means that, unlike printed bills or minted coins, it exists exclusively in the digital space, with no physical counterpart. You can’t hold it in your hand per se, but it has a definite value and functions like an electronic version of regular currency. Another defining feature of cryptocurrency is that it’s not issued by any central authority or state, so it’s not controlled by any bank or government. Cryptocurrency is bought, sold or traded in what’s known as peer-to-peer transactions. That means that transactions occur person to person, via computers, with no middlemen like banks or financial institutions.
But this invites a question: how do you trust a system with no central authority? The answer involves using a new type of super-secure technology that’s known as blockchain.
WHAT IS BLOCKCHAIN?
To sum it up in one slightly complicated phrase: the blockchain is a persistent, transparent, public, append-only ledger that can record transactions efficiently in a verifiable and permanent way.
Put simply: the blockchain is basically a tamper-proof database that stores digital assets. What’s special about this database is that it’s distributed all across the world. It’s hosted by many different computers in a peer-to-peer framework so there’s no one central server and, critically, there’s no one individual or government that has control of it.
You can imagine this system as an accounting ledger. When we say it’s “append-only”, we’re referring to the fact that we can only add information to the ledger. We can never remove information. So it’s a system that you can add data to, but can’t change the existing data within it. This is also what makes it “persistent” and “transparent”. All the information is always present.
This ledger consists of a growing list of records, called blocks. Each block contains a link to a previous block, like a chain. Once information is recorded in any given block, it can’t be changed later on without altering all the other blocks that came before.
In other words: if a thief wanted steal from you, it wouldn’t be enough for him to hack your computer (or your bank’s computer); he would have to hack every computer in the network – literally millions, upon millions of computers. Obviously, this is practically impossible. By design, blockchains are inherently resistant to modification of data.This is why the technology is designated: secure-by-design.
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Cryptocurrencies are very speculative investments and involve a high degree of risk. Investors must have the financial ability, sophistication/experience and willingness to bear the risks of an investment, and a potential total loss of their investment. See Risk Disclosures.