These two – cryptomoney (more commonly referred to as cryptocurrency) and Blockchain technology go together and it is important to understand how they work and are used in unison.

A cryptocurrency (for example, Bitcoin) is a digital or virtual currency that has no physical representation. You can’t hold a Bitcoin in your hand, it only exists virtually. They can be traded for physical cash or other cryptocurrencies. Using cryptocurrencies makes you anonymous, and provides greater security than using physical cash, like the US Dollar. This is an emphasized benefit.

Cryptocurrencies are not issued by any central authority, like a government or bank. This means that when two users transact currencies there is no middleman or third party, which lowers transaction costs. Currencies are stored in a wallet of some kind – online or on your hard drive. Without a wallet, you can’t receive, spend or hold on to your cryptocurrencies. Every user has a private key to a wallet and an individual address so that only he/she has an access to it. It is no wonder that cryptocurrencies created a new market, considering all of these qualities.

Cryptocurrencies are used to buy goods, invest or accept payment for a service. On the other hand, authorities all around the world are raising questions considering the use of this new technology for illegal activities such as money laundering, tax evasion, drugs or weapon distribution.

The most commonly used cryptocurrencies are Bitcoin (which was the first cryptocurrency to become popular in 2009), Ethereum, Ripple and others.

Digital information (transactions) is distributed over a public ledger called the blockchain. Every transaction makes “a block” somewhere on that ledger. Users who verify transactions and solve blocks are called miners and receive some award in Bitcoin for their trouble. This makes information available to all users and resistant to hacks. Blockchain technology is promising and its decentralized nature and security make it attractive for use in stock markets independent of Bitcoin and other cryptocurrencies.

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Posted by Min Park

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