Cryptocurrency is the new buzz word we’re always hearing in the media.
Whether it’s fluctuating Bitcoin values or a mention of cryptomining malware, most of us are left wondering what cryptocurrencies are and how they work.
Cryptocurrencies such as Bitcoin are virtual currencies, which means they exist only online – there are no physical notes and coins.
There are currently more than 1000 cryptocurrencies, with more being developed. The most common are Bitcoin, Monero and Ethereum.
How does it work?
Cryptocurrencies rely on a principle known as ‘blockchain’. This is the technology that makes cryptocurrencies work.
Blockchain is a digital register that records all transactions relating to a virtual currency. If you buy or sell cryptocurrency, or even use it to buy a coffee at a trendy ‘we accept bitcoin’ café, it will be recorded in this digital register.
These transactions are then verified by ‘cryptomining’. Cryptomining uses the processing power of computers to solve complex mathematical problems, and verify transactions. The miners–who are like auditors–are then rewarded with a small amount of the currency.
This step ensures the validity of the currency, with no one able to use the same money twice. The miners keep cryptocurrency users honest!
How are cryptocurrencies different?
Like any currency, the value of cryptocurrencies change depending on a number of factors. However, unlike traditional currencies, the values often change dramatically, and sometimes very quickly. Those that invest in cryptocurrencies accept a large amount of risk.
Also unlike traditional currencies, cryptocurrencies don’t belong to a central bank, which means they have no government backing. They are international currencies and can be used to send money around the world without any identity checks.
Who uses cryptocurrencies?
While cryptocurrencies are a popular choice for cybercriminals involved in malicious or illegal activity, they are also becoming increasingly popular with legitimate users as well.
It is likely that over the coming years, cryptocurrencies will be more accepted and more popular – some even believe they will replace traditional currency altogether.