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What are cryptocurrencies?

Jane Goodwin


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Cryptocurrencies are a virtual currency that mirrors ‘regular’ currencies in that they can be exchanged for another asset. Unlike regular currencies which are backed by the government or central bank of a country, cryptocurrencies are held online. Technically speaking they are restricted entries in a database. The database is shared on a peer-to-peer network, there is no central server. Being a digital currency means that encryption techniques are used to regulate the generation of the units of currency. The price of cryptocurrencies has fluctuated dramatically. Some traders take positions in the market based on their view of how and when the price might fluctuate again in the future. As a result some of the major cryptocurrencies are available on broker platforms. The broker IQ Option for example, facilitates trading in the following: Bitcoin, Ethereum, Ripple, Litecoin, EOS, Binance coin, Tron, Cardano, IOTA, Dash, Neo, NEM, Zcash, Qtum, OmiseGo and BitTorrent. Whilst there are more than 1,600 cryptocurrencies globally, online markets that exist tend to include the more established versions. The concept of decentralized digital money is generally traced back to the Bitcoin whitepaper that was published by Satoshi Nakamato in 2008. The principles laid out in this whitepaper became the model for the wider market and the first Bitcoin transaction was made in January 2009. In the intervening 10 years the value of Bitcoin reached a peak of more than US$19,000 in Dec 2017, but since then has fallen back to US$3,970. There are a limited number of assets that have such volatility which explains their popularity with traders who through research and analysis bet that they have a better understanding of what the correct market price should be. Cryptocurrencies are not only traded as assets. The value after all is a function of how useful they are to hold. There is some criticism that cryptocurrencies facilitate black market activities and money laundering. An example of how they are used in more general activity can be found in current-day Venezuela where holding, and using, crypto is becoming increasingly common. Cryptocurrencies are not without their downsides but for many is seen as a more reliable form of currency than the official national currency, the Bolivar, that is subject to hyper-inflation.
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