With cryptocurrencies being all the rage, you might be toying with the idea of investing in one, especially if it's a local cryptocurrency. Before you do, read this.
First, do you know what a cryptocurrency is? The golden rule of investing is that you must understand the investment and the associated risks.
Deconstructing the word shows that it is has to do with cryptography and currency/money. Cryptography is the science of encrypting sensitive information so that it is undecipherable to anyone that should not have access to it. Cryptocurrencies are therefore intended to be a secure form of digital money that cannot be counterfeited like cash or gold.
Unfortunately, many cryptocurrencies are not as secure as they ought to be.
When you log in to your banking app or use internet banking to view your account balances or make a payment, all the previous payment transactions you see are electronic records that are stored in the database owned and secured by your bank.
In the case of cryptocurrencies though, the payment records are stored on a database that is shared by people on a network. This database is called a block chain, because the payment records are stored in groups or as blocks of records that are linked or chained together in a way that makes it tamper-proof.
Cryptocurrencies are often marketed as a means of payment that does not require a bank. Bitcoin was the first such payment network.
Bitcoin refers both to the payment network, and in another context, the currency exchanged on the payment network. What makes the bitcoin payment network unique is that it is not owned by anyone. There is no CEO; there is no one in charge. There is no company behind bitcoin that can be sued...