Cryptocurrency is a relatively new financial and investing instrument. Its popularity started with the meteoric rise of Bitcoin, but important details about cryptocurrency are still a mystery to many individuals. Despite this, more people grow curious about digital coins as the technology literacy of society expands.
A Powerful New Financial Instrument Emerges
As cryptocurrency headlines pepper media publications, the innovative currency grows increasingly harder to overlook. This exposure is slowly but surely causing the public to warm to the concept of digital money. Especially since the instrument experiences massive, yet highly unpredictable, growth spikes. At one point, for instance, the total cryptocurrency market jumped from $20 billion to nearly $31 billion in a small, four-month span, greatly increasing the portfolios of investors already entrenched in the market.
Cryptocurrency for the Uninitiated
The heart of cryptocurrency lies in the ability to exchange funds without traditional third-parties, such as banks or creditors. Using a technology called blockchain, cryptocurrency holders exchange funds with each other directly and anonymously. The transfers are powered by a network of peer-to-peer computers that approve exchanges and validate each transaction. The real-time validation is an effective deterrent against theft and fraud. While the transactions resemble popular payment platforms such as PayPal, the currency differs in that all transactions are recorded in a single public record using blockchain technology, a process called mining.
The Technology Behind the Currency: Blockchain Explained
Despite its complexity, the concept behind blockchain technology is relatively basic, consisting of a chain of transactions directly tied to all previous transactions. In order for a transfer to take place, both peer computers must confirm that the current transaction is valid. This is where the complex algorithm of cryptocurrency comes into play. Because each peer hosts independent, validated records of transactions, it’s virtually impossible to counterfeit the digital currency. Ultimately, blockchain validation is a streamlined process compared to banking validation that reduces errors, theft and paperwork.
Measuring the Cryptocurrency Influence On the Free Market
Due to the speculative nature of cryptocurrency, emerging market intelligence (MI) technology has created a renewed interest in the financial instrument. MI technology allows investors to analyze business trends in the hopes of predicting future outcomes. Investors and business people have met with success using the technology in other industries. Cryptocurrency investors might one day use the technology to predict trends in the market that allows them to earn a considerable profit. For example, using market intelligence technology, investors may one day interpret financial cryptocurrency data, ascertain risks and make strategic investment decisions.
Financial analysts that specialize in cryptocurrency will have to combine select skills to make meaningful use of market intelligence. An MI analyst will need to understand the information reported by the powerful technology and must maintain a network of contacts that allows them to stay informed about important trends in the cryptocurrency field.
Cashing in on Digital Currency
Cryptocurrency exchanges are a busy marketplace where people buy and sell their interests in the instrument every day. The exchanges feature “wallets” where investors can store their digital funds. However, some individuals opt to use private online wallets in the wake of an attack where cyber thieves successfully hacked what was once the world’s largest digital currency exchange due to poor management. Other cautious investors maintain physical hardware to store their wallets, which adds flexibility, but is the equivalent of keeping money under a mattress. If a disaster occurs – such as a fire, flood or theft – the currency will disappear along with the hardware.
Some cryptocurrency investors take a high risk approach to profits, much like Forex day traders. This tactic takes advantage of positive news surrounding a particular cryptocurrency. However, the method can produce losses as quickly as it produces gains. As a precautionary note, financial experts suggest that investors use cryptocurrency as only part of their financial strategy and treat the instrument as a high risk investment.
A safer form of cashing in on the cryptocurrency cash cow is “mining,” where individuals provide computing power to validate transactions. Hosts are rewarded for each transaction resolved by their hardware. However, the profits are marginal, and this tactic is a long-term approach to cryptocurrency income that requires taking on significant overhead and keeping a keen eye on costs. “Staking,” another long investment method, involves buying cryptocurrency and simply waiting for the value to increase. Finally, some aggressive crypto-investors participate in arbitrage, where they buy digital coins from one exchange and sell it to another in the hope of generating a profit.
The biggest cryptocurrency investment method that’s been flooding the media lately is the initial coin offering (ICO) where investors buy in hoping that the value of their wallet soars. Regardless of the many investment options, it is the security and geographic and governmental autonomy of cryptocurrency that makes it an undeniable force in the world of finance.