Cryptocurrency

What is a 'Cryptocurrency'

A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of this security feature. A defining feature of a cryptocurrency is that it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation. The anonymous nature of cryptocurrency transactions makes them well-suited for a host of nefarious activities such as money laundering and tax evasion. The first cryptocurrency to capture the public imagination was Bitcoin, which was launched in 2009. Bitcoin's success has spawned a number of competing cryptocurrencies such as Litecoin, Namecoin and PPCoin.
 

BREAKING DOWN 'Cryptocurrency'

 
Cryptocurrencies make it easier to transfer funds between two parties in transactions; these transfers are facilitated through the use of public and private keys for security purposes. These fund transfers are done with minimal processing fees, enabling users to avoid the steep fees charged by most banks and financial institutions for wire transfers.
 
A major drawback of cryptocurrencies is that because they are virtual and do not have a central repository, a user’s digital cryptocurrency balance can be wiped out by a computer crash if a back-up copy of the holdings does not exist.
 
Since prices are based on supply and demand, the rate at which a cryptocurrency can be exchanged for another currency can fluctuate widely.

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