Cryptocurrency
Have you ever heard the terms cryptocurrency, blockchain or Bitcoin and wondered what are these or how do they work? In this article I’ll be explaining some of these terms and what they are.
Cryptocurrency in essence is a digital currency used by Internet users to purchase goods and services online. Digital coins are exchanged between users and are recorded in a digital ledger called a blockchain. The digital ledger is distributed between a network of computers that eliminates the need for transaction keeping as the ledger of coins or block of transactions received and sent always remains accurately stored somewhere on the Internet. A blockchain also removes the necessity of having a bank account, instead a digital wallet is kept for the sending, receiving, and storing of cryptocurrency.
Bitcoin is one of the first cryptocurrencies ever invented by Japanese inventor Satoshi Nakamoto. At the time of writing this article, if you were interested in purchasing one Bitcoin, it would cost you R 761,816. To date there are 18.81 million Bitcoins in circulation. New coins are ‘mined’ into circulation by specialized computers that solve computational problems that allow them to chain together blocks of transactions (called a blockchain). When Bitcoin was first invented, the maximum number of coins to be in circulation would be 21 million coins.
Bitcoin is not the only cryptocurrency, in fact, to date from its inception in 2009, the total number of cryptocurrencies currently available on the Internet are a staggering 13,506 different cryptocurrencies. The pricing or cost of these digital coins are largely determined by the demand and supply of them. Many individuals invest in these coins for capital appreciation and as a store of wealth. The markets for these digital assets can, however, prove to be extremely volatile.
There are advantages and disadvantages of cryptocurrency. There is no formal financial institution that regulates cryptocurrency meaning there is no red tape when it comes to fast, reliable, and secure transacting that you would normally find when using a traditional bank account. The universal nature of this digital currency allows it to be accessible and used anywhere in the world. The anonymity of sender and receiver is maintained as the only information maintained in the digital ledger or blockchain is the volume of coins and the time of the transaction.
As mentioned previously, cryptocurrencies are extremely volatile meaning that in a short space of time these digital assets can appreciate and depreciate. There is also a risk of transacting with someone that may not be legitimate or may not honour their side of a deal when transacting with digital currencies and suppliers from abroad. The other hurdle when it comes to transacting with cryptocurrency is that many of the formal financial institutions including SARS, do not accept cryptocurrency as a valid means of payment. Losses incurred through mistakes caused when transacting cannot be reversed.
Having mentioned some of the advantages and disadvantages of cryptocurrency. The question remains would I invest in this form of digital currency? Being accustomed to a traditional bank account for numerous years together with advancements continually being made in the banking sector and banks in general. Having no need to transact digitally abroad and not willing to risk the extreme volatility that comes with cryptocurrency, I personally would not put away money in this form of investment. I may not have sufficient research experience on the subject matter to have an opposing opinion to differ.