A cryptocurrency refers to digital method of exchange that uses a complicated mathematical and scientific encryption and algorithms to generate and verify transactions that involve money. Any transaction that takes place with digital currency coins is added onto a public ledger that’s called the blockchain.

New cryptocurrency coins are generated through a process that is called “mining.” Some of the most popular digital currency coins used nowadays arebitcoin, Ethereum, and Litecoin. At present, there are more than 500 digital currency coins that can be traded online.

How do Digital Currencies Work?

A cryptocurrency is a peer-to-peer digital currency that enables different people to trade anonymously. There is no intermediary, meaning the transactions take place just between two parties. This information is kept in the blockchain, which cannot be modified or easily disrupted.

For a currency to be a legitimate cryptocurrency it must have a public ledger that will keep all the transactions and the actual currencies must be acquired through solving complex mathematical problems by doing mining.

By using cryptocurrencies, the identities of the involved parties will stay anonymous. This is possible because of encryption. Mining can be done by anyone who has the necessary equipment to perform such activity.

The Pros

Digital currencies are nearly impossible to fraud. It is safer to deal with digital currencies that to deal with real currency. Since they operate based on blockchain technology, there may never be instances of identity theft and faked passwords. The sender of the digital currency cannot also reverse  a transaction as is the case with some other more traditional forms of payment.

Credit cards are often stolen or forged, particularly when you give someone your card to deduct an amount. With digital currencies, the owner of the digital-currency wallet determines the exact amount he wants to send and the intended recipient. Because of that there’s nearly zero chance of identity theft.

Performing transactions in digital currencies is faster and more convenient. There are no third party approvals that you would need to wait for. The transactions only involved the sender and the recipient. Aside from actually sending, there are no other formalities involved.

Further, it is cheaper to transact with digital currencies since there is no third party involved. This means that there is no handling fee or processing fee that you need to pay.

The Cons

There is no central governing body tasked to regulate the digital currency transactions. This tells you that people are not fully protected from fraudsters. There is no guaranteed authority. In the event that users lose their money somehow, there is nothing much they can do about it.

Cryptocurrencies are not yet accepted everywhere. Most businesses and countries do not recognize the use of cryptocurrencies as a legal means of payment. This puts a limit to the usage of cryptocurrencies to only some retailers and countries.

There is uncertainty that surrounds cryptocurrencies because most government organizations such as banks are still against the mainstream use of digital currencies. This has spurred fear among people who haven’t yet tried using them. Uncertainty also can be found as people are not very sure about the future of digital currencies.