What Are Digital Currencies And What About Cryptocurrencies?

Do you know your Bitcoin from your Ripple? Understand the future of money…

Recently, there’s been a lot of talk about the pros and cons of investing “crypto” – but do you really know what it is, and how it compares to other digital currencies?

First, a little history lesson:

Digital currencies were first invented to make online transactions easier. Now they’re being held as assets by investors who believe their value might outperform conventional markets.

Digital currency is the umbrella term for crypto currencies and other types of non-material money. It’s all stuff that you can never hold in your hand (or hide under the mattress or slip into a birthday card) but which you can use to pay for products and services over the internet. Standard digital money goes in a virtual “wallet” that acts like a bank account ie. you sign up to a company and it does the admin and provides security for you.

Cryptocurrencies are a bit different. They’re the wild west of digi-currency. Or you might prefer to think of them as an off-grid, alt-tech utopia where clever eco-science means everyone can live peacefully and in good health without signing up to global industry. Basically, the point of them is that they are anonymous, transparent and almost “untouched by the human hand”. There’s no admin company or boss sitting in a penthouse office in a skyscraper: it’s all decentralized. The whole system is organized via a mathematical algorithm and a “blockchain” which is a ledger that automatically records all the transactions made and keeps them in the public domain for all to see.

What do people love about crypto?

The absence of the proverbial fat-cat in the skyscraper makes the world of cryptocurrencies seem less corrupt, because there’s less involvement from we pesky (greedy, insecure) humans. There are no partners taking home massive bonuses at the top of the company as a reward for managing your money. There’s no call centre calling you up during dinner to talk about your account. They don’t keep any information about you, so your personal data is not vulnerable to hacking.

And the downside is…?

See above! With no central management system, there’s no safety net for you if things go wrong. With normal digital “banking”, you can retract a payment, cancel a transaction or complain to a professional customer service department if you have a problem. With no one at the help, you’re on your own with crypto. You could lose everything if the system collapses, or it turns out to be all a big prank created by an evil overlord in an underground bunker (ok maybe not that) but the bottom line is, there’s no one to turn to for recompense. Also, you lose your private keys = you lose your money.

If you’re thinking of investing in this brave new world of Bitcoin and its cousins, delve deeper and do some research - the Bank of England has some sensible articles on the phenomenon on their website - but be prepared to lose everything. We find cryptos really exciting but it is still very much uncharted territory.