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What Are Cryptoassets (Cryptocurrencies)?

Date: 14 December, 2023

Crypto assets, also known as cryptocurrencies, have been making the headlines lately. You might have heard names like Bitcoin, Ripple, Litecoin, and Ethereum buzzing around. But what exactly are they?

Let’s break it down. “Crypto” means hidden or secret, reflecting the technology that securely records ownership and facilitates user payments. And “currency” tells us the primary purpose—they’re a form of electronic cash.

But unlike the notes and coins we’re used to, cryptoassets live digitally and work through a peer-to-peer system. No central bank or government is overseeing them. Some like having more control over their money, but it comes with risks.

How Is Cryptocurrency Created?

Creating cryptocurrencies involves complex computer processes, like mining for gold, but in the digital realm. It’s not something you can do manually at home. If you’re curious, there are excellent videos explaining this.

What Can You Buy with Cryptocurrency?

Honestly, it’s not your everyday groceries. At least, not yet. Most major stores on the high street in the UK don’t accept cryptocurrency as payment. It’s quicker and more inexpensive to use compared to regular money.

People are trying to make it more user-friendly, but right now, it’s more of an investment asset. People buy it, hoping its value will rise. But it’s a bumpy ride. The value of these cryptoassets is all over the place—sometimes shooting up, other times taking a nosedive.

How Unpredictable Is Cryptocurrency’s Value?

Oh, it’s wild. Take Bitcoin, for instance. From 2014 to 2018, while oil prices stayed relatively stable, Bitcoin’s value went through rollercoaster rides—shooting up by 65% one day and plunging by 25% the next.

This unpredictability? It’s what makes investing in these digital currencies so risky. Imagine your investment swinging up or crashing down, like riding a financial rollercoaster.

So, if you’re considering diving into the crypto world, be ready for a wild ride. It could pay off big, or it could crash and burn. It’s that unpredictable.

References:

https://fcnb.ca/en/investing/high-risk-investments/crypto-assets-and-cryptocurrency#:~:text=Crypto%20assets%20are%20purely%20digital,create%2C%20verify%20and%20secure%20transactions.

https://www.bankofengland.co.uk/explainers/what-are-cryptocurrencies

 

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