According to the digital token tracking site CoinMarketCap, there are over 1,200 different cryptocurrencies in circulation today. New coins are being created every day with new features and functions that are designed to meet a specific need. Some of these alternative digital currencies are broadly referred to as “alt-coins” or “token currencies.” Other terms for cryptocurrency include “digital tokens,” “virtual currency,” and simply “crypto.” We know what you’re thinking: This seems suspiciously like another fad that will blow up and crash soon enough. But as with any emerging technology, it only makes sense to take a closer look at what cryptocurrency is and how it could potentially be useful in your life as an investor or consumer.

What is cryptocurrency?

A cryptocurrency is a virtual or digital asset that uses cryptography for security. A Cryptocurrency can be an asset used as a medium of exchange like a traditional currency, but can also be used as a way to create contracts and other financial products. However, not all virtual currencies use cryptography as a security feature. Some virtual currencies use a system called a blockchain to record all transactions. Blockchain is essentially a public journal that records all transactions to ensure that each token is unique and that nobody can double-spend their tokens.

How does cryptocurrency work?

Cryptocurrency works on the principle of blockchain, which acts as a digital ledger for all transactions. When a person purchases cryptocurrency, they are given a digital wallet that allows them to store, send and receive the coins. Cryptocurrencies are not printed like conventional money; they are produced by computers that solve mathematical problems. When new blocks are added to the blockchain, the existing blocks get compressed and the new information is added to create a chain. With each transaction, the blockchain is updated and everyone in the network gets a copy of the updated version. This is how the public ledger is created. The integrity and the chronological order of the blockchain are secured with cryptography.

Why has cryptocurrency become so popular?

There are two basic reasons why cryptocurrency has become so popular: The growth of the internet – Cryptocurrency is based on the idea of a decentralized network. The internet is also decentralized in nature, so there seems to be a logical fit between the two technologies. The desire for anonymity – There are many people who want to keep their financial transactions completely anonymous. Cryptocurrency allows people to send funds without revealing their identities.

Pros of cryptocurrency

No government control – Some people love the idea of cryptocurrency because it is not controlled by any government. There is no central bank or regulatory body that has control over cryptocurrencies like the Federal Reserve has control over the U.S. dollar. Privacy – Unlike credit card networks, cryptocurrencies are not monitored by any third party. This means that you don’t have to worry about having your personal information revealed when you make a transaction. Data security – When you use crypto tokens for transactions, you get full control of your money. You don’t have to worry about your bank account or credit card being hacked.

Cons of cryptocurrency

Volatility – Cryptocurrency is an investment that is known for its volatility. The value of these tokens rises and falls like the stock market. Therefore, if you are hoping to use cryptocurrency as a way to pay for a regular expense like a mortgage or car payment, you might find that the value of your tokens has dropped too low to be useful. Lack of regulation – One of the reasons that cryptocurrency has grown so quickly is that it is not regulated by any government. While some people love the idea of a decentralized financial system, others are concerned that uncontrolled growth could lead to another financial crisis.

Should you invest in cryptocurrency?

Before you decide to invest in cryptocurrency, you will want to think carefully about your reasons for doing so. If you are hoping to make a quick profit, you should know that the value of cryptocurrencies can be quite volatile. If you see cryptocurrency as a long-term investment, it may make sense to purchase some tokens. However, you will want to proceed with caution. The cryptocurrency market is extremely volatile and you could lose a large portion of your investment if you aren’t careful.