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They are growing exponentially, with bitcoin, the best known cryptocurrency, showing growth of more than 1, per cent since the start of the year, according to XE.
Though bitcoin is the best known, there are hundreds of other cryptocurrencies being traded in the market. Cryptocurrencies are simply a medium of exchange, like the US dollar, pound or euro, but they only exist digitally. They rely upon encryption technology to control the creation of units of the currency and to confirm transactions. That technology is called blockchain. As the currency does not exist in a physical form, it is imperative that it cannot be replicated or spent more than once.
To avoid this, the technology publishes all transactions in a public record with multiple versions of that ledger distributed online so they may be checked and updated automatically. Those ledgers are then protected by attaching a number of new transactions to the ledger, with the old version frozen and encrypted.
This is known as a block and each block contains a copy of the previous ledger. This makes them easy to check and verify, but difficult to copy or alter. UK regulator, the Financial Conduct Authority, does not regulate cryptocurrencies, but just because something is unregulated does not mean there are no liabilities.
This is the mistake that many made back in the dotcom bubble and, rather than realising taxable gains, they got hung, drawn and quartered when it collapsed. Like any other asset, values are determined by supply and demand, though without any outside regulatory influence, prices are driven largely by market sentiment and speculation.
This has resulted in eye-watering levels of volatility in recent weeks. Being tied to no government, economy or currency may provide a little insulation from the geopolitical rollercoaster. With notable exceptions, cryptocurrencies may be viewed more favourably by governments that can see the benefit of transparency and efficiency for at least some of their functions.
Banks, too, are looking to exploit blockchain efficiencies and could see it start to become a mainstream technology. Blockchain is seen to be the mojo for making the internet of things a reality with devices able to exchange data, and pay for services securely and independently. Tiana Laurence, a founder of blockchain company Factom and author of Blockchain for Dummies , says this is fast replacing venture capital investment in this area.
The demand comes from investors, who believe the value of the coin they receive in exchange for funding will increase, but the risks, as in any startup, are great. This website uses cookies to enhance your experience when visiting it and to serve you with advertisements that might interest you. By continuing to use this site, you agree to our use of cookies. Special Reports Digital Custom Publishing.
Also found in Cryptocurrencies Blockchain Fintech. Also in Trading Strategies Most Popular in Finance.