If you’ve spent any time online recently it’s likely you have heard the term ‘cryptocurrency’ used. If that sparked your interest, it’s not without good reason. Cryptocurrencies are an exciting advancement in financial technology, happening right before our very eyes.
But at its most basic level, what is a cryptocurrency and how does it work? In its most simplistic form, cryptocurrency is online money, a digital-only medium of exchange that can be traded for goods and services.
While Bitcoin remains the most popular and widely known cryptocurrency, it is far from the only one. As of the end of 2020, there were more than 7,800 cryptocurrencies in circulation, created by everyone from hobbyists to start-ups to financial corporations and nations. From Dogecoin to Ethereum and beyond, there’s thousands of options for traders - many on Coinspot! Trade Ripple, sell Monero and buy opus coin on CoinSpot, all with just a few clicks.
But why so much press around crypto? There are many reasons why – from crypto optimists who see it as the 'currency of the future’ that will replace traditional currencies such as the dollar to savvy investors who recognise its value as an asset, people are drawn to crypto for various reasons.
For people in the first camp, crypto’s appeal lies in its underlying technology: the blockchain. A decentralized transaction processing and record-keeping system, the blockchain offers a way to maintain a currency without the oversight of a central bank. A secure by design system, the blockchain ensures public ownership of the cryptocurrency network, preventing centralised control.
What’s the difference between the cryptocurrency and traditional currencies? Cryptocurrencies are not backed by a country or corporation – instead having their value set by the market. A digital-only currency, any cryptocurrency you acquire is stored in a digital wallet with no useable physical equivalent existing. As such, it is vital that you keep any storage medium used to hold your cryptocurrency secure.
Things to know before you invest in cryptocurrency
Before you take the first step of buying into a cryptocurrency, there are a few things that you must keep in mind. Firstly, the value of these currencies is always changing. Many cryptocurrencies are known for their volatility, with Bitcoin itself shedding up to a quarter of its value overnight.
As such, understand what you’re buying. Be careful during investing: if someone is telling you that you can make a 'guaranteed' profit through cryptocurrency, be wary. Just like any investment, there is no way to be 100% certain that you will make a profit on a cryptocurrency investment.
Second, do your research. With thousands of cryptocurrencies out there, make sure you’re buying a good product from a reputable company. Research the coin you’re looking at, and then research the digital exchange you’re considering buying it from. Specifically in the case of the latter, do research on the company, and its name, add words like ‘complaint’ or ‘scam’; this will give you an insight. Sometimes, Google doesn’t show the full picture, so you need to be careful.
Buying something with cryptocurrency
If you’re thinking of making a purchase using cryptocurrency, remember that not every place accepts every cryptocurrency – so use the right one!
Additionally, because of the decentralised nature of cryptocurrency, note that you will not have the same kind of legal protection when you buy something with traditional currency. Payments made using cryptocurrency are usually irreversible; you can't get your money back. You can only recover them if the seller sends it to you.