The good news is that by buying crypto via an online exchange, all the wallet setup, security and custody are managed for you by the exchange, so you don’t have to worry about setting up and managing your own digital wallet.
However, if you’re investing in crypto in a big way, it might be worth considering setting up your own personal wallet. This is the right option if you’re anxious about security but, be warned, it also involves many risks.
What exactly is blockchain technology, and how does it work?
At its core, the blockchain is a ledger – a long, publicly viewable record of transactions flowing to and from wallets. If you go onto an exchange and buy some bitcoin, that transfer is lodged on the ledger.
However, while a bank might run or store a ledger on its servers, blockchain technology is distributed. Thousands of computers across the world each have a copy of bitcoin’s ledger. These computers then cross-reference each transaction with each other to prevent any fraudulent activity.
Every 10 minutes, these computers package all the transactions received during that time as a “block”, which is cryptographically linked to the preceding block. These blocks are unable to be modified or changed. It is these blocks that form the “blockchain”.
Why is bitcoin the most expensive?
Mainly because it was the first cryptocurrency, launched way back in 2009-2010, where it first traded at about 9¢.
Bitcoin’s programming also dictates that no more than 21 million bitcoin can be created, with the coins becoming exponentially harder to mine every four years.
Will cryptocurrency become the norm?
It’s highly unlikely that cryptocurrency in its current form will replace traditional currency any time soon.
Sending a bitcoin transaction costs about $US2.50 in fees. It also takes about 10 minutes to make the transaction. Both of these features mean using bitcoin as an everyday currency to buy your lunch would be highly impractical.
Bitcoin is not the only crypto in the market and there are numerous other smaller projects that are quicker and cheaper to use, however, by and large, they are still more complex and slower than Visa or Mastercard’s networks.
But outside of being an everyday use currency, crypto is fast becoming increasingly popular as an investment for both retail investors and major funds, with bitcoin frequently likened to “digital gold”.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.