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Technological advancements affect more than just the phones in our pockets or the cars on the road. It touches every part of our lives, including how we handle money.
Digital currencies have become more and more popular in the past few years. One possible reason for it could be the pandemic. People were more aware of what they touched and feared contamination. Hence, cashless payments became the obvious choice for transacting with vendors.
While cashless payments take over consumers’ day-to-day transactions, many people still doubt digital currencies—with good reason. It’s their money, so they’ll be wary of its security.
This article aims to provide you with three important facts you need to grasp to understand how secure digital currencies can be.
Characteristics of a Secure Digital Currency
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It’s digital-only
Given that the currencies are digital, the only way to access them is through electronic devices. You can’t have these currencies in your wallet like you would with cash. Depending on your situation, digital-only money can be good or bad.
A situation where having digital currencies might be an advantage would be if you somehow misplaced your wallet or someone took it from you. It wouldn’t matter much since your money is stored electronically, anyway.
On the other hand, if you’re in a situation where you have no access to any device, it would not be easy to transact with digital currencies. Unfortunately, not many vendors offer payments made through digital currencies yet.
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It’s decentralized
One of the biggest draws of digital currencies is that it’s decentralized.
Typically, the money we use is handled by a bank. These banks are corporations run by CEOs and board members, meaning it’s centralized. If you want to send money or buy something, your money passes through these banks first.
Storing money in a bank account means entrusting your money to a third party. You aren’t sure what the bank does with your money once it passes through them. Many have cited several problems, one being a lack of transparency.
With decentralized networks, transactions are simply between you and another person–no third party. It also means that the money you have is completely yours.
Another benefit of having a network without third parties is it’s permissionless. You can send money to people as if you’re just sitting in a room together. Sending money across the globe won’t entitle you to pay exorbitant fees.
These economic incentives of Bitcoin and other crypto and digital currencies make them much more enticing for people who want to take back control of their finances.
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It runs on a blockchain
When paying via credit card, you give the institution the information needed to buy something online. It’s best if financial institutions don’t get details about how to buy something using your credit card. They should only know how to receive using your card.
In cryptocurrency, someone may know your address and send money to you, but they can’t take money out of your account. The details of doing so are different, making it more secure. Each of these transactions is recorded on a digital ledger called the blockchain.
A blockchain is like a record of all the transactions made with the cryptocurrency. It keeps track of who has what.
When you make a payment on a blockchain, it turns into a “node.” It’s broadcasted across the blockchain network. All other cryptocurrency holders will know the transaction through the currency’s code. They’ll see if you moved that money from A to B but won’t know who A and B are, protecting your identity.
If everyone has the same record of the transaction—the codes all match, including you and the person you’re paying—it becomes valid, and the money goes through.
Take another example. Suppose someone chooses to tamper with their money: they code to have more money. On the record, no transaction happened—their money “magically” grew on its own—other people would have a different record of that person’s money. With this, it gets invalidated and doesn’t go through.
This level of validation allows cryptocurrencies to operate safely and securely without needing a third-party keeping watch.
Handling Digital Currencies Safely
Knowing the best practices for the security of digital currencies will ultimately determine how safe your digital money truly is.
One way to keep your digital currencies safe is by using two-factor authentication. Digital wallets often ask you to download an authenticator app on your phone. It makes it even more difficult for potential hackers and scammers to access your digital funds.
Anyone can create a cryptocurrency. There are over 18,000 cryptocurrencies with varying degrees of value to choose from and invest in, with more emerging daily.
Different digital currencies have varying levels of cybersecurity, depending on their creators. That’s why if you’re new to crypto, you should choose ones that have been around longer and are reputable such as Bitcoin.
It’s also why, just like any financial investment, you should avoid putting all your eggs in one basket. Diversifying your digital currency portfolio will protect you from unexpected situations.
Likewise, try to limit your transactions with individuals, institutions, and vendors to avoid spreading your information online. If you aren’t sure about the right way to handle your digital currency, consider working with digital currency experts to receive the financial guidance you need.
Wrapping Up
As technology advances and society embraces the changes, digital currencies become even more popular. They shift the way we think about money since they deal with an exchange of value that isn’t physical, like cash, or overseen by a third party, like banks.
It isn’t always safe to invest in crypto. There’ll always be risks alongside its benefits. Proper knowledge of the market can help protect you against security risks.
Like dealing with anything new, it’s always important to understand best practices as it helps you maximize the benefits of the subject. Speak with experts and spread your digital currency investments. It can be a high-yielding addition to your investment portfolio if done right.
About the Author
Kimberly is currently the content writer for BSV Devcon. She has been writing insightful content for a wide range of niches and platforms. She believes there’s a fine line between right and wrong, with the Oxford comma comfortably lying in the middle.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.