Excited by Ethereum or simply confused by the whole bitcoin, blockchain, distributed ledger technology language? Here’s a quick guide to the basics.
Digital or virtual money. It is an electronic payment system based on mathematical proof, a means of exchange, independent of central authorities, that could be transferred electronically in a secure and verifiable way. There’s no actual cash involved. The “money” is stored in a virtual wallet and anyone with a mobile phone or computer can operate one. You don’t even need ID. Virtual currencies can be bought or sold on an exchange platform using conventional money. As virtual currencies have become more popular, new ways to buy and sell them have developed. Virtual currencies can be used to pay for actual goods and services from any person willing to accept them as payment.
The first digital currency was started in 2009 and accounts for about a third of the market. Prices have been volatile, fluctuating from an initial US$1200 to a peak of US$19,205 in December, before sliding to US$8200 in February.
An open, distributed ledger that can record transactions between two parties and ensure a secure, verifiable, permanent record. Can be programmed to record not just financial transactions, but virtually anything of value.
An open-source, community-based cryptocurrency similar to Bitcoin, launched in 2016. It changes its system by vote of the entire community.
The exchange platforms on which you buy and sell virtual currencies are generally not regulated, which means that if the platform fails or is hacked, you are not protected.
Distributed ledger technology and blockchain are often used interchangeably, but DLT is a slightly broader term that includes the blockchain concept used in foreign exchange remittance payments, securities settlement systems, debt issuance programs and digital identity initiatives.
Initial Coin Offerings (ICOs) are a new way of fundraising for companies, enabled by blockchain. You invest by sending digital currencies such as Bitcoin to a blockchain project. In return you receive digital tokens related to that project. ICOs have been used to raise hundreds of millions of dollars for blockchain-related projects. Although growing rapidly, the industry remains unregulated, run by domain experts rather than mainstream investors.
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