Digital currencies are making headlines at the moment because they are being seen as a democratization of wealth. Digital currencies are a form of decentralized currency, that is entirely virtual, and that is not backed by anything physical, as CryptoRevolution.ie explains.
People who have access to large amounts of computing power use that power to ‘mine’ for digital currencies, and process transactions for others that are using the network. Every transaction is anonymous, and must be agreed by the rest of the users in the network. This is a huge change from the way that banks work, where the bank has control over the currency. Digital currencies, at least some of them, are limited in terms of the total number of coins that can exist – whereas banks can ‘print money’ when they believe that it is necessary.
Some digital currencies are ‘mined’ to create new coins, while some are token based, and this means that people just buy them, although there is a limit to the total number of tokens that will ever be generated.
You store your digital currencies (Things like Bitcoin, Eth, Bytecoin, Tether, etc) in a digital wallet, which can either be kept online, or on your hard drive or a memory stick. The wallet has a long, complex address which is a collection of letters and numbers. It is locked with a password or passphrase, and it is important that you do not lose that password, because if you forget it there is no way to reset it – you will lose access to the wallet, and all of the contents in it. If someone else finds out your password, then they can take control of the wallet and spend the coins. Unlike traditional banks, there is no recourse for “fraud” or “chargebacks”, you will simply lose those coins forever.
Digital currencies show a lot of promise. They are quite volatile, however, and this means that people who invest in them are taking a huge risk. If you buy them now, then you should do so only with money that you can afford to lose. The currencies can move by several percent per day, and have been up and down between a peak of $20,000 and a low of $6,000 in the first few months of 2018 alone. There are opportunities to make money for those who are able to take the risk, but the volatility means that they are not a long term investment.