Bitcoin, Ripple, Litecoin, Ethereum, and Co. are all examples of cryptocurrencies. These are purely virtual currencies that are primarily used online. They can be used for transactions between individuals, for business transactions, or for games such as kiss918 or gambling transactions.
Cryptocurrencies are not administered from a central point (e.g. bank) but are distributed across all participants in a special network. This decentralized structure is achieved via a distributed ledger technology – e.g. blockchain or tangle. Each participant receives a copy of the database, which contains all previous transactions.
Wallets: accounts for virtual currencies
In order for a user to participate in and actively use a cryptocurrency, they need an account, the so-called wallet. This is where the participant’s current tokens are stored – i.e. their current account balance, so to speak. There are different forms of wallets, but in principle, they all have the same functions: They are used to send, receive, and manage a participant’s tokens. Wallets are cryptographically protected and also contain the address of the owner.
Advantages of cryptocurrencies
Cryptocurrencies offer many advantages over traditional currencies, including
- Fast transactions with minimal waiting times in the range of a few minutes
- Anonymous payments protect privacy
- Decentralized payment transactions independent of financial institutions
- Secure transactions and tamper-proof accounts through shared management via blockchain
- Currency is valid internationally, no exchange rates, no link to national interest rate developments
There are also risks
- Lost wallets are usually irreplaceable
- Depending on the currency, only very limited distribution/acceptance as a means of payment
- Strong price fluctuations
Is a cryptocurrency fiat money?
Fiat money is all means of payment that have no intrinsic value. This means that they have no real exchange value, unlike gold or raw materials, for example. The classic fiat money that everyone knows from everyday life are usual currencies: euros, dollars, and the like consist of coins and banknotes that are only worth something because you have agreed on them. Fiat money can be exchanged for goods and services practically anywhere.
Strictly speaking, cryptocurrencies are also fiat money. Not only that – they come much closer to the definition of fiat money, as they are purely virtual and thus actually have no intrinsic value at all. As long as there are enough users of a cryptocurrency who recognize its value, it can be used for a wide variety of transactions just like fiat money.