A whole virtual wallet with Cryptocurrencies, bitcoin or blockchain, they are surely inside. Virtual currencies are becoming more and more popular and there is a lot of publicity on the internet about this innovative payment method. However, cryptocurrencies carry a risk that many users are not aware of.
Cryptocurrencies, a virtual currency
Cryptocurrencies, also known as virtual currencies, are a digital asset. It fulfills the function of a normal currency, but they are totally digital: they do not exist physically, but are stored in a digital wallet.
This virtual wallet or purse, which is usually called a wallet, is a software or application where it is possible to store, send and receive cryptocurrencies. What is stored are the keys that give us ownership of the cryptocurrencies and allow us to operate with them.
To secure financial transactions, cryptocurrencies use cryptographic methods, that is, all data in these currencies is encrypted. This also makes it possible to control the creation of new units, preventing anyone from making copies of the cryptocurrencies.
Bitcoin, the first cryptocurrency
The first cryptocurrency that appeared on the network was Bitcoin, created by Satoshi Nakamoto. This name is actually a pseudonym that corresponds to a person or group of people who, to this day, still nobody knows exactly who they are. The creator (or creators) has become one of the 20 richest people in the world.
Satoshi Nakamoto created Bitcoin using blockchain technology, which was also invented at the time. The blockchain works as a kind of registry that only exists on the internet and stores all the information regarding cryptocurrencies. This technology is what provides certain security to these currencies, preventing, for example, digital assets from being counterfeited.
Bitcoin began to take its first steps in 2009 and, since then, more and more new cryptocurrencies have been arriving. Some of the best known alternatives are Ethereum and Litecoin.
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Characteristics and risks
Cryptocurrencies have a series of characteristics that differentiate them from any other traditional currency. First of all, they are not regulated or controlled by any institution. Currently, a regulation is being negotiated at European level to establish a regulatory framework; however, at the moment there is no type of regulation.
What does this imply? According to the National Securities Market Commission (CNMV), from a legal point of view, cryptocurrencies are not considered a means of payment, they do not have the backing of a central bank and they are not covered by customer protection mechanisms.
Second, it is important to know that the value of cryptocurrencies varies based on supply, demand, and user engagement. For example, Bitcoin has suffered a huge loss in value in recent months, from almost $70,000 in November to about $21,000 today. The CNMV warns that there are no effective mechanisms to prevent the manipulation of these prices.
The problem is that we are talking about very volatile currencies, whose value varies continuously and that does not have any kind of regulation. This causes a lot of speculation around cryptocurrencies, so investing in them can pose a high risk of loss or fraud, so it is best to stay informed.