Cryp­tocur­ren­cies

Bit­coin, Etherum, Tether and many others are dig­ital cur­ren­cies and means of pay­ment enjoying con­sid­er­able atten­tion. To some extent, they even have already entered our daily lives. But what is it these dig­ital cur­ren­cies promise, and what should you take into account?

Thou­sands of cryp­tocur­ren­cies vie for users’ favour with great promises as to their secu­rity, sim­plicity, trans­parency and profits to be made. The head­lines though often paint a dif­ferent pic­ture: Exor­bi­tant exchange rate fluc­tu­a­tions and their fre­quent use by cyber­crim­i­nals are scratching at this image. What is behind this new-style mon­e­tary concept?

Cryp­tocur­ren­cies – what are they?

Cryp­tocur­rency is the term used to denote dig­ital cur­ren­cies based on unal­ter­able math­e­mat­ical and cryp­to­graphic prin­ci­ples (the sci­ence of encryp­tion) through all stages from gen­er­a­tion via storage to their exchange. They do not there­fore require reg­u­la­tion by any super­or­di­nate insti­tu­tions. In return, there is no-one to take inter­ven­tion mea­sures in case errors occur when han­dling cryp­tocur­ren­cies.

Cryp­tocur­ren­cies don’t have any real or intrinsic value. Instead, they are vir­tual assets, with their value solely deter­mined by supply and demand. It there­fore takes only minor swings in the market to trigger some­times major exchange rate fluctuations.

Cryp­tocur­ren­cies are “mined”, stored and exchanged in decen­tralised net­works based on Blockchain tech­nology. In the process, Blockchain plays the part of a dis­trib­uted account book main­tained in a dis­trib­uted, non-hier­ar­chical com­puter net­work. One defining char­ac­ter­is­tics of cryp­tocur­ren­cies is that they are not gen­er­ally issued by any super­or­di­nate insti­tu­tion. This way, cryp­tocur­ren­cies can be used for online pay­ment without the inter­ven­tion of a third party, e. g. a bank.

There are thou­sands of dif­ferent cryp­tocur­ren­cies, the biggest and most well-known being Bit­coin.

Based on Blockchain technology

The smooth working and secu­rity of a cryp­tocur­rency is safe­guarded by Blockchain tech­nology. As can be inferred from its name, the Blockchain is a chain of inter­con­nected blocks for­ever increasing in length, where trans­ac­tions are filed. These inter­con­nected blocks with their listed trans­ac­tions, also called an account book, are not admin­is­tered cen­trally, but via a dis­trib­uted net­work of thou­sands of com­puters. Every newly gen­er­ated block has to be ver­i­fied and con­firmed by every node, making it almost impos­sible to fake transactions.

No oppor­tu­nity without risk

Next to their oppor­tu­ni­ties or advan­tages, cryp­tocur­ren­cies also bear risks. One of the largest is the con­fus­ingly huge number of dif­ferent cryp­tocur­ren­cies in cir­cu­la­tion, and the enor­mous exchange rate fluc­tu­a­tions they are prone to.

You should there­fore be careful and con­sider very thor­oughly which (crypto)cur­ren­cies you invest in. Before you invest, it is well worth using inde­pen­dent sources to check the cur­rent exchange rate his­tory with regard to real currencies.

My wallet, my responsibility!

Cryp­tocur­ren­cies are stored dig­i­tally in so-called wal­lets, pro­tected by access codes. Your access code is the only way for you to get hold of your assets stored inside a wallet. If you lose your access code, your money is gone, too.

Pro­tect your crypto wallet by:

• prefer­ably using an offline hard­ware wallet;
• storing your wallet ID and access codes extremely care­fully and securely – also offline, for instance on a piece of paper inside a safe;
• never passing on your wallet ID and access codes via e‑mail or in any other way, and never entering them on any dubious plat­forms or apps either.