What exactly is cryptocurrency?

You may have heard of the cryptocurrency, Bitcoin, but do you really know what it is?

In simple terms, cryptocurrency is an alternate, digital form of money that removes the need for a third party, such as a bank. Cryptocurrency functions both as currency and as a virtual accounting system. A digital currency exchange, Coinbase, for example, lists 10 “available” cryptocurrencies, including Bitcoin and Bitcoin Cash.

In order to use cryptocurrency, you need a cryptocurrency or “digital” wallet such as Coinbase. Using Bitcoin has attracted many people for many reasons including fast and free international transactions that are censorship-resistant and decentralized while providing a safer and cheaper way for merchants to do business. However, using Bitcoin to fund personal financial accounts tends to spark more protective actions from its users.

When deciding whether to tread the waters of cryptocurrency, consider yourself well-advised to explore all potential hazards:

  • Under-insured or not insured: Because cryptocurrency is so new, insurance companies are reluctant to cover it. Designing insurance plans and pricing typically requires more information than is available. Their lack of faith in this sector also leads them to believe the premiums will not be large enough to cover their losses.
  • Hacking: Hacking into your cryptocurrency account is as simple as discovering your login credentials. Being fooled by a single email phishing attack can be like handing over your digital wallet to a thief. Once the hackers have phished your login credentials, they can transfer all your cryptocurrency to another account and you’ll never be able to recoup it. 

    In addition to knowing a phishing attack when you see one, you’ll have to know how to spot fake websites, which simulate the official exchange websites so well they can trick you into providing your login information.

  • Losing your wallet: If you lose your wallet, you can lose your entire investment if you don’t have a wallet backup. Human error can be the most fatal risk associated with cryptocurrency, so be careful not to lock yourself out of your account, forget your password or forget to back up your wallet.

One of the few certainties about cryptocurrency is risk. Before taking a leap, do extensive research.