Virtual currencies are, simply put, currencies that exist primarily in digital markets. They are a market made for cyberspace. Virtual currencies can be traded and bought just like stocks, or used like dollars to purchase goods. Even well-known online stores now accept virtual currencies. They are becoming as ubiquitous as cash. Only a few things make them different: the way we value them, the way they are secured, and how they are viewed.
Mining: The Weight Behind The Currency.
Every currency is given spending power by something, whether it is gold, a government’s agreement, or common consensus. In virtual currencies, often referred to as cryptocurrencies, that “something” is usually mining. Mining in virtual currency refers to computations, usually done by computer, which result in hashes, or strings of numbers. If the hash is the right one- just like in real mining, only certain places contain ore- the person who performed the hash is rewarded with an amount of the virtual currency. With some currencies, the correct hash is random. With others, the hash is a number with real-world implications. Primecoin, for instance, rewards currency when the number found is shown to be a prime number. This is used in further mathematical research.
Blockchain: The Security of The Currency.
Virtual currencies are also called cryptocurrencies because of how they are secured. Just about every virtual currency uses cryptography to encrypt personally identifiable information in trades, so trades cannot be taken advantage of. This is especially necessary because all trades are done publicly, on the blockchain. The blockchain is a publicly accessible listing of what is happening to each “coin” of cryptocurrency: whether it is sold, bought or traded. Since we can all see what has happened in the past, there is little chance for anyone to game the system by trying to use the same “coin” twice, when in reality they’ve already traded it away. This is the digital way of protecting against counterfeiting, which helps protect against inflation.
High Risk, Questionable Reward: How We Are Looking At Virtual Currency Today.
Overall, virtual currency is viewed as a high risk investment today. The overwhelming advice you will see is never invest more than you are prepared to lose. This is because the cryptocurrency market is incredibly volatile, being only about a decade old. As with other volatile markets, if you carefully buy low and sell high, there is profit to be made. However, with such a constantly changing market, it’s hard to distinguish whether the current low is going to rise soon, or if you’ll have an investment on your hands that you may be forced to sell for a negative return.
Virtual currencies are an emerging market that is gaining a lot of attention right now. It’s a market that looks attractive to computer experts and investment bankers alike. If you pay attention to the things that make them different, it can be an attractive investment, as well. It may be a market you will enjoy dipping a toe in.
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