What are cryptocurrencies
The decentralized encryption and record-keeping mechanisms used in these direct payment networks, which bypass financial intermediaries such as banks, provide increased privacy and security for transactions. A major challenge for the adoption of cryptocurrencies is the greater variability of these digital assets, which leads to a higher probability of large losses.
Crypto currencies, also called crypto, are digital or virtual assets. They do not exist in the form of physical tokens like coins or bills, but rather as digital tokens stored in digital “wallets”, which are software applications installed on users’ computers or mobile devices.
Cryptocurrencies are used for electronic payment transactions. Crypto payments are implemented in decentralized computer networks connected through the Internet. There are no banks involved in the transactions and no paper notes. This implies many advantages of cryptocurrencies as well as disadvantages of cryptocurrencies.
Consider Bitcoin transactions. All bitcoin transactions are recorded in a virtual public ledger called a “block chain”, which is maintained by bitcoin “miners” who can be anyone. Each bitcoin digital wallet contains encrypted information in the form of files, called public and private keys, which are used to send and receive bitcoins.
The Benefits of Cryptocurrency
Crypto transactions are processed in groups called blocks by miners using encryption. The encryption action is called a hash: a hashing algorithm takes a unit of data and turns it into a random string of numbers and letters. The hash ensures that the data is extremely secure.
Crypto transactions are characterized by privacy that is unattainable for cash payments, as the transactions are not carried out in the central bank-controlled banking system, but are implemented in decentralized networks. They are virtually anonymous.
Crypto transactions can be done easily: anyone can send and receive a variety of cryptocurrencies using a simple smartphone app, hardware wallet, or exchange wallet. And a bank account isn’t always necessary to use crypto: some types of cryptocurrencies, including Bitcoin, Ethereum, and Litecoin, can be purchased with cash at a Bitcoin ATM. They can then send these coins to their phone, hardware wallet, or exchange wallet.
Crypto payment transactions can be made at any time: running exchanges like New York Stock Exchange or London Stock Exchange is not required to execute transactions. Cryptocurrency trading hours reflect the fact that crypto transactions are directly executed between counterparties in computer networks connected via the Internet.
Crypto payment transactions are much cheaper than conventional currency payments through the banking system. They are also settled in much shorter timeframes than payment transactions through the banking system.
For comparison, cryptocurrencies like Litecoin, XRP and others can be sent for pennies or less. Bitcoin and Ether transactions can cost anywhere from ten cents to several dollars or more.
And payouts for most cryptos settle in seconds or minutes. Bank transfers often take three to five business days to clear and can cost significantly more.
Bitcoin has a limited supply: there will only ever be 21 million Bitcoins in existence. Cryptocurrencies with a limited supply cap like Bitcoin, Litecoin and others are considered good inflation hedges