Cryptocurrencies (or digital currencies) is a brand-new class of asset that has created a stir of excitement around the world – yet, because of the newness of the technology, not many people really understand what cryptocurrencies are.
Understanding what cryptocurrencies are is vital for investors, enabling them to make informed investment decisions just as they would with stocks or mutual funds.
Here, we’re going to explore what exactly makes a cryptocurrency a digital asset – including how they are created and why they’re valuable, especially when compared with more conventional assets.
Digital Currency Is Decentralized
The decentralized, global nature of cryptocurrencies means that no one entity can control them. Not one government or central bank has this power. In addition to this autonomy, there is no ability to dictate what can and cannot be used. A government may ban a specific cryptocurrency – but that does not mean it can enforce that ban. This is something unique to cryptocurrency that no other asset class offers.
Digital Currency Can Be Directly Transferred
Thanks to the decentralized nature of cryptocurrency, it also doesn’t require a third-party to be involved in a transaction: this means, for example, there is no need for bank mediation or suffering PayPal limitations. Anyone can send money to another person in seconds, and at vastly reduced costs without fees from middlemen.
Digital Currency Is Private and Anonymous
The cryptocurrency blockchain isn’t just transparent when recording all transactions: it also has secure cryptographic protocols and layers of encryption built in which hides personal information from prying eyes. For users, this means that all transactions are anonymous and private.