Cryptocurrency, a new financial innovation for the 21st century

Over the past two decades, the internet has revolutionized the way the global economy transacts business. There is no doubt that technological innovations play a huge role in driving changes in the world that we live in. Over the past few years, another technological innovation had begun to emerge and has begun to drive changes in how transactions on the internet are being carried out. This new innovation is a new kind of currency that is totally devoid of governmental control called cryptocurrency. So what is a cryptocurrency?

A cryptocurrency is a digital currency that utilizes the principles of cryptography as a means of security. It is created through the solving of complex mathematical puzzles and is decentralized. By decentralized, we mean that there is no central authority that issues or is involved with the administration of the cryptocurrency. The value of a cryptocurrency is entirely determined by the users of the cryptocurrency through market forces.

The first cryptocurrency that was introduced to the world was Bitcoin in late 2008. Since then, there has been a proliferation of cryptocurrencies on the internet with the latest count being more than 900 types of cryptocurrencies. Nevertheless, cryptocurrencies are more than just a medium of exchange. Because of the anonymity and security that they offer, they also act as a storehouse of value for investors. For example, when the Republic of Cyprus underwent a major credit crisis in 2012/13, the crisis also affected the confidence in the Euro. As a result, many investors turned to Bitcoin as a safe haven currency which is free from any manipulation by a government. As a result, the value of Bitcoin shot up to more than the price of gold. Today, the price of one Bitcoin is still trading several times higher than an ounce of gold.

How to Acquire Cryptocurrencies

There are two main ways of acquiring cryptocurrencies. The first way is by cryptocurrency mining. The second method is by purchasing them with fiat currencies.

Cryptocurrency Mining

The foundation of a cryptocurrency is the blockchain technology. Essentially, a blockchain is a public ledger that contains all the data of all transactions carried out with the cryptocurrency. In order to avoid fraud and double spending, a cryptocurrency transaction has to be verified first and the record of the transaction added as a new block to the existing blockchain. The process by which the transaction is verified is known as cryptocurrency mining. New crypto coins are issued as a reward for the verification process. In order to maintain the scarcity of the cryptocurrency, the mining process is programmed in such a way that the yield of crypto coins becomes less and less as time goes by.

Cryptocurrency Exchange

Apart from mining, another way where individuals can acquire cryptocurrencies is by purchasing them on a cryptocurrency exchange. Cryptocurrency exchanges are an online marketplace where cryptocurrencies are bought and sold with fiat currency or with other crypto coins. Some of the more popular cryptocurrencies that are traded on cryptocurrency exchanges include the following:

  • Bitcoin
  • Bitcoin Cash
  • Dash
  • Ethereum
  • Litecoin
  • Monero
  • Ripple

Cryptocurrency exchanges were initially established to aid transactions with cryptocurrencies as they provide an avenue for individuals to acquire cryptocurrencies by exchanging them for fiat money. However the rapid appreciation in value of some cryptocurrencies, many individuals have begun to use these exchanges to trade cryptocurrencies as investments.

Cryptocurrency Markets

Since the first cryptocurrency Bitcoin was introduced in late 2008, the prices of cryptocurrencies have not demonstrated any sort of price stability to qualify it as a proper medium of exchange. Instead, cryptocurrencies are notoriously known to be price volatile. Nevertheless, this price volatility has also opened up an alternative avenue for investors and traders to profit from the cryptocurrency craze through alternative investment vehicles such as Contract for Differences (CFDs).

Sensing a market opportunity, many brokers have begun to offer cryptocurrency trading on their trading platforms through CFDs. For example, investors now can invest in cryptocurrency CFDs such as BTC/USD or ETC/USD. Often times, these cryptocurrencies CFDs are paired with the U.S dollar or with other cryptocurrencies. Because the high volatility exhibited by cryptocurrencies, the margin requirement on cryptocurrencies is higher than average. Nevertheless, for those who are intimately familiar with cryptocurrencies and know how to track their price movements, cryptocurrencies CFDs can prove to be a very profitable way to invest their money.

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