A cryptocurrency is a digital coin, designed to be transferred between people in virtual transactions. Cryptocurrencies exist only as data and not as physical objects; you cannot actually hold a Bitcoin in your hand or keep Ethereum in your safe. Owning a Bitcoin means you have the collective agreement of each and every computer on the Bitcoin network that it is currently owned by you and – more importantly – that it was legitimately created by a miner. Cryptocurrencies offer you a level of independence impossible with other means. When you keep your money in a bank, you are at the mercy of other people and organizations. At any moment, your access to the money that is rightfully yours can be limited or closed by the bank outside of governmental structures. The bank can be robbed or go bankrupt. With cryptocurrencies, your money is yours only and stays yours forever. You do not rely on financial institutions for holding or transferring it. You do not have to pay their exorbitant fees. In the long run, it can become the basis of a truly open and decentralized economy. By investing now, you can be at the forefront of it all.
Pros & Cons before investing in crypto
Cryptocurrencies hold the promise of making it easier to transfer funds directly between two parties, without the need for a trusted third party like a bank or credit card company. These transfers are instead secured by the use of public keys and private keys and different forms of incentive systems, like Proof of Work or Proof of Stake.
In modern cryptocurrency systems, a user's "wallet," or account address, has a public key, while the private key is known only to the owner and is used to sign transactions. Fund transfers are completed with minimal processing fees, allowing users to avoid the steep fees charged by banks and financial institutions for wire transfers.
DisadvantagesThe semi-anonymous nature of cryptocurrency transactions makes them well-suited for a host of illegal activities, such as money laundering and tax evasion. However, cryptocurrency advocates often highly value their anonymity, citing benefits of privacy like protection for whistleblowers or activists living under repressive governments. Some cryptocurrencies are more private than others.
Bitcoin, for instance, is a relatively poor choice for conducting illegal business online, since the forensic analysis of the Bitcoin blockchain has helped authorities arrest and prosecute criminals. More privacy-oriented coins do exist, however, such as Dash, Monero, or ZCash, which are far more difficult to trace.
Special ConsiderationsCentral to the appeal and functionality of Bitcoin and other cryptocurrencies is blockchain technology, which is used to keep an online ledger of all the transactions that have ever been conducted, thus providing a data structure for this ledger that is quite secure and is shared and agreed upon by the entire network of an individual node, or computer maintaining a copy of the ledger. Every new block generated must be verified by each node before being confirmed, making it almost impossible to forge transaction histories.
Many experts see blockchain technology as having serious potential for uses like online voting and crowdfunding, and major financial institutions such as JPMorgan Chase (JPM) see the potential to lower transaction costs by streamlining payment processing.4 However, because cryptocurrencies are virtual and are not stored on a central database, a digital cryptocurrency balance can be wiped out by the loss or destruction of a hard drive if a backup copy of the private key does not exist. At the same time, there is no central authority, government, or corporation that has access to your funds or your personal information.