What are cryptocurrencies and digital assets?

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A cryptocurrency is a virtual currency or digital asset that can be used to make secure, online payments. Cryptocurrencies are secured by computational phenomena called cryptography, which is hosted on a decentralised network referred to as the blockchain. The technology is essentially a database of transactional information known as a ledger, enforced by an independent, peer-to-peer network of over 100 000 computers around the world. This makes it nearly impossible to counterfeit or double-spend when using cryptocurrencies and presents numerous investment opportunities through disruptive technology. The defining feature of cryptocurrencies is that they are generally not issued by a central authority, rendering them theoretically immune to government interference or manipulation.

The first blockchain technology was Bitcoin, created in January 2009 by an individual or group using the alias Satoshi Nakamoto. Bitcoin offered the promise of an online currency secured without a central authority, unlike government-issued currencies. There are no physical Bitcoins, only balances associated with a cryptographically secured public ledger. Think of Bitcoin as digital gold, a store of value, but not something you necessarily transact with.

Today, there are thousands of alternate cryptocurrencies, known as altcoins. Some altcoins that were spawned by Bitcoin’s success include Ethereum, Litecoin and Ripple. Ethereum is currently the second largest cryptocurrency and enables the deployment of smart contracts and decentralised applications. Ethereum has its own programming language, which runs on a blockchain that enables developers to build and run distributed applications on the Ethereum blockchain. Think of Ethereum as an open source network like the internet.

The potential applications of Ethereum are wide-ranging. It is powered by its native cryptographic token, ether (commonly abbreviated as eth). Ether is used by developers to build and run applications on the platform for two main purposes. It can be traded as a digital currency on exchanges in the same way as other cryptocurrencies and used on the Ethereum network to run applications.

Thanks to a peer-to-peer mindset and a blockchain like Ethereum, thousands of altcoins offer efficient and inexpensive ways to transact digitally, on the internet, using cryptocurrencies, stablecoins, security tokens and utility tokens. The most disruptive force on the Ethereum network is referred as DeFi (decentralised finance), which attracts a myriad of integrated services and company launches. These transactions rely on the mining of cryptocurrencies and the launch of new services referred to as ICO’s (Initial Coin Offerings). ICO’s churn out new currencies and ongoing development to improve the blockchain and verification of ledger activity as well as incentivise and reward participants.

Article written by Andrew Ludwig https://www.linkedin.com/in/andrewjohnludwig/ , Head of Distribution @ CURRENCY HUB https://currencyhub.co.za/and founder of BLACK ONYX https://blackonyx.co.za/ and FUND HUB https://fundhub.co.za/.

Disclaimer: This article does not constitute financial advice. While the author and his firms are regulated by the FSCA, cryptocurrencies are not a regulated investment.  Please refer to CURRENCY HUB https://currencyhub.co.za/ a juristic representative of BLACK ONYX (FSP 47701) https://blackonyx.co.za/ for more information.