What is Cryptocurrency?

Maybe you’ve seen ads offering investment opportunities or have heard about them on the news and on social media – cryptocurrencies are certainly growing in popularity. They are a form of digital currency which can be bought with national money, traded online and exchanged for goods. They are commonly seen as a peer-to-peer version of electronic money.

Currently, there are over one thousand different cryptocurrencies, but the most popular are Bitcoin, Ethereum and Litecoin. Bitcoin was the very first and set the precedent for how it would all work. Cryptocurrencies operate on a decentralized system, so there is no central server hub to support its use. Likewise, there is no official government or corporate control over the flow and exchange of the electronic currency.

Instead, they are solely reliant on members of the public, called “miners”, who oversee and validate each transaction. In order to do this, they use the  Blockchain network to record and legitimize each exchange. Miners must solve a coding puzzle to authenticate a transaction, which then becomes permanently recorded, as well as untraceable and irreversible. In return, miners receive financial reward and take home the transaction fees.

Therefore, the safety, integrity and balance of cryptocurrencies is based solely on members of the public, who often do not know one another.

How do I purchase them?

Buying cryptocurrencies can be straightforward. You can find different platforms online which can provide you with a buying and trading service. Many of the popular currencies are hosted on Coinbase, which allows you to select your preferred choice and connect your debit/credit card for quick investments. You can also add your bank account details for larger, longer term purchases.

However, please be aware of the risks which are associated with purchasing cryptocurrencies. The number of scams involving these currencies has tripled over the last year as hackers turn to trading websites to try and trick would-be purchasers into sending money to them.

The rise of such criminal behavior has led to Google, Facebook, Twitter and Instagram banning cryptocurrency advertisements on their websites to try and stop it.

As with any scam, be aware of red flags which indicate that the seller is not legitimate, these could be:

  1. Unsolicited contact
  2. The deal is too good to be true
  3. You’re asked to share personal details
  4. You’re put under pressure to respond quickly
  5. The organization’s contact details are vague
  6. There are spelling and grammar mistakes in the marketing material
  7. You’re asked to keep the deal quiet

If you experience any of these, we advise that you do not go through with the transaction.

What can I spend them on?

The list of merchants who are accepting cryptocurrencies as payment is expanding. At the moment, you will find that most traditional services allow you to pay through digital currencies. For instance, you can book your hotel and flights using Bitcoin, while some furniture stores also allow you to make purchases using these currencies.

One well-known brand which accepts cryptocurrencies is Microsoft. Customers can download movies, games and app-based services using Bitcoin. If you have cryptocurrency and would like to pay for goods or a service, it is always best to check in advance to see if the merchant will accept it.

Despite the recent decline in the value of Bitcoin, the number of cryptocurrencies is growing. With costs to invest falling and our increasing bias towards digital services, it’s difficult to not envisage a future where this form of virtual currency replaces money as we know it today.