Cryptocurrency

Cryptocurrency is a digital currency secured by cryptography, using a series of keys to know the owners at any given time. Just like more traditional currencies (e.g. the dollar, the pound, the euro etc), cryptocurrency can be exchanged for goods and services, or itself bought, sold and traded as an investment.  

Unlike traditional currencies, crypto is not backed up by a government or a central bank. Instead, it relies on the security of cryptography (encryption using complex mathematical problems), and its value is determined by supply and demand.

Most forms of cryptocurrency are based on a blockchain. While the technicalities of exactly how a blockchain works are complex, it may help to imagine a blockchain as a ledger of all past transactions, with each page of records representing one ‘block’ of data. Each block is secured using cryptography and linked to the next block, creating a continuous chain of records. Once information is entered into a block, it can’t be erased or altered – it’s a permanent fixture.

Cryptocurrency is considered a decentralised form of currency, as the blockchain has no central location. Instead, the blockchain is held on many computers known as nodes, each one having a copy of the blockchain (in the case of bitcoin there were 14,886 nodes in March 2022). And with no central bank or record-keeping institution managing a blockchain, it may be more difficult to hack or defraud.

There are thousands of cryptocurrencies and altcoins available to invest in, and new coins are being minted all the time.

Just a few popular cryptocurrencies include: 

• Bitcoin
• Ethereum
• Ripple
• Litecoin
• Chainlink
• Tether
• Polkadot

Because different cryptocurrencies are created for different purposes, and include different features and benefits, it’s important to compare the available options before making a choice. 

There are two main ways to get your virtual hands on some digital cryptocoins: mine it, or buy it.

Mining cryptocurrency involves contributing some of your computer’s processing power to solve cryptographic problems, which helps generate new blocks and maintain the existing chain, earning you a small amount of cryptocurrency as a reward. However, professionally-run “cryptofarms” of thousands of networked computers mining 24/7 have made crypto mining less economically viable for everyday users.

Buying cryptocurrency works a lot like investing in any other asset, such as shares. Simply register with a cryptocurrency exchange, and invest as much money as you feel comfortable with into the crypto coin of your choice.

A cryptocurrency exchange (sometimes called a digital currency exchange or DCE) is an online platform for buying, selling and trading cryptocurrency. Crypto exchanges make money by charging fees on withdrawals and/or trades of cryptocurrency on the platform.

You can also store your cryptocurrency on a crypto exchange – or at least the private digital keys that prove ownership of your crypto on the blockchain. However, as there’s a risk that you could lose access to a crypto exchange, or the exchange could be targeted by malicious hackers, many crypto enthusiasts choose to keep their keys in a dedicated crypto wallet.

Unlike the leather wallet in your pocket or purse that lets you store coins, notes, credit cards, bus passes and old receipts, a crypto wallet offers a digital means of storing crypto keys. Maintaining a crypto wallet separate to a crypto exchange can offer a measure of extra security for your cryptocurrency.

A crypto wallet can be a physical means of digital storage, such as a hard drive or USB stick. It can also be an online app, protected by encryption, for more convenient access to your crypto 

Cryptocurrency can be used a lot like typical currency, though not as many retailers around the world will accept payments in cryptocurrency for goods and services – good luck paying for a pie and chips at the footy tuckshop with bitcoin. You’re more likely to use cryptocurrency as a peer to peer means of exchange, similarly to transferring money between bank accounts. 

Many people are interested in the value of cryptocurrencies as an investment asset, much like shares. Some investors try to buy hot new cryptocoins when they’re first starting out and hold onto them, hoping that their value will rise over time. Other investors actively track the values of different cryptocurrencies, and regularly buy, sell and trade coins to maximise their short-term returns.

Whether you’re interested in using or investing in cryptocurrency, there are cryptocurrency exchanges where you can get started. These options are in some ways comparable to stock trading platforms – you may be able to manage your crypto yourself using an app, go through a broker, or even look at peer to peer trading. It’s important to compare your options to make sure you’re getting the value you want without having to pay more than you want to in fees.