You’ve probably heard a lot about Bitcoin, Eth, and other crpytocurrencies, but investing in them can be confusing. If you’re interested in learning more about digital currencies, then the first thing you should understand is that they are entirely virtual – they are not backed by anything (although many real world currencies no longer are, either), and they are stored either on your hard drive or in a digital wallet on someone else’s server. Lose access to the file that is your ‘digital wallet’, or forget the passcode associated with it, and you lose that money forever.
Digital currencies are traded on exchanges, or bought and sold in direct transactions with other traders. When you ‘spend’ or ‘receive’ digital currency, the transaction is recorded in a ledger, and everyone who has a wallet maintains a copy of that ledger – so you can’t lie or retract the spend easily, because all the other users of the currency would have to agree with the version of events being reported. This means that digital currencies are protected from fraud.
There are now thousands of digital currencies, some are tokens where the developers issued a finite number of ‘coins’ when the currencies launched. Some are coins that can be ‘mined’ by performing complex calculations using your computer’s processing time. There is a finite number of coins to mine, and the value of the coins is something that will fluctuate over time.
Digital currencies could offer a lot of opportunities for people who are interested in investing or in making money using their computer processing time. Bitcoin is the market leader right now, but it is just one of many and it could be that an alternative currency could take over if it offers more security or lower transaction fees for the average user.
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Investing in new technologies including cryptocurrencies has been compared to going to a party. You never want to be the first person there, or the last to get there. We always recommend that you educate yourself to allow you to form a balanced opinion.