Especially in the corona crisis and the associated fear of inflation, investors are looking for alternatives to money on the high edge. Those who do not decide to buy gold, stocks or real estate will sooner or later come across the world of cryptocurrencies – the most famous among them is Bitcoin. But what are digital currencies all about?

What is cryptocurrency?

Even the term “cryptocurrency” sounds complicated at first. The word “cryptography” means something like “secret writing”. Similar to this importance is also the cryptocurrency. This is the encrypted form of a digital payment option.

Cryptocurrencies do not require intermediaries such as banks and similar financial institutions. Also, the payment works completely state-independent. Digital networks and corresponding trading platforms serve as the source of cryptocurrency. The first and best known of its kind is Bitcoin, which was invented in 2009.

Functionality and properties

When Bitcoin saw the light of day as the first cryptocurrency, the idea arose to create a transparent and at the same time highly encrypted monetary system. Central, state bodies such as the European Central Bank should be completely left out. Instead, the users themselves take care of the money transfer and everything related to it. An important factor is the security of the information. The currency should not be manipulable, which is why a high degree of encryption for Bitcoin and Co. is required.

For payment with the cryptocurrency, there are special software programs, the so-called “wallets”. To use Bitcoin, only the installation of these wallets like Metamask or Coinbase (visit Coinbase Wallet vs MetaMask | Best Crypto Wallets to learn more) is necessary. Each user receives their own cryptic code that works like an account number. It is the most important information for receiving money.

How do I get Bitcoins and similar currencies?

Cryptocurrencies are traded digitally on various platforms. Both the exchange of a certain amount of money from one cryptocurrency to the other and payment in US dollars or euros are possible. The system thus works in a similar way to stock trading.

Advantages and disadvantages

Advantages

Many users rate the possibility of anonymous payments as positive. This differs from conventional transfers. In addition, with Bitcoin, the transfer of money is faster: Transfers are done within a few moments and without further ado. Originally used primarily in the digital world, it is now also conceivable to use the special type of currency in certain shops or restaurants outside the Internet.

Disadvantages

There are no safeguards for cryptocurrencies, such as those available in the case of theft of credit cards by banks. Also, they do not bear interest and have no material value (such as gold).

Investing in cryptocurrencies involves high risk. As with the stock market, profits, but also high losses are possible. Especially with cryptocurrencies, there are extreme price fluctuations.

As a purely digital currency, it is considered a popular target for hackers.

In addition, enormous amounts of energy must be expended to produce cryptocurrency. The production is therefore considered to be very harmful to the environment.

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Trend: Growing interest in cryptocurrencies

Although cryptocurrencies are elaborately produced, there is no fixed value that can be attributed to them. Only supply and demand determine the price and the trend. Nevertheless (or precisely because of this), cryptocurrency trading last saw an increase in February 2021.

In general, investors’ interest in digital currency is increasing; not only because of low-interest rates and the fear of inflation after the corona crisis. The general mistrust of state-owned banks also drives many people to an alternative form of investment.

Conclusion: Cryptocurrency interest is increasing

Together with options such as the purchase of gold, Bitcoin as a cryptocurrency is also increasingly attracting the interest of investors. The boom as a result of the corona crisis could open up opportunities through cryptocurrencies. However, it must be borne in mind that extreme price fluctuations with very high losses can occur. As with all forms of investment, the personal advantages and disadvantages must be weighed.