Cryptocurrencies are digital assets that can be exchanged between trading counterparties directly in decentralized computer networks connected over the Internet. The encryption and decentralized record-keeping mechanisms used in these direct payment networks, which bypass financial intermediaries such as banks, provide higher privacy and security of transactions. One of the main challenges facing cryptocurrency adoption is the high variability of these digital assets resulting in a high potential for significant losses.

Cryptocurrencies are digital or virtual assets. Bitcoin and Ethereum are the most popular cryptocurrencies. They do not exist in the form of physical tokens such as coins, but as digital tokens stored in digital “wallets,” which are software applications installed on user computers or mobile devices.

Cryptocurrencies are used in electronic payment transactions. Crypto payments are carried out in decentralized computer networks connected via the Internet. There are no banks involved in transactions and there are no fiat currencies. This gives cryptocurrencies many advantages and disadvantages on the other hand.

Let's think about Bitcoin transactions. All Bitcoin transactions are recorded in a virtual ledger called the “block chain”, which is mined by the people doing the Bitcoin mining who can be anyone. Each Bitcoin digital wallet contains encrypted information in the form of files, called public and private keys, which are used to send and receive bitcoins.

Cryptocurrency transactions are processed in groups called blocks by miners using cryptography. The encryption procedure is called hashing: A hashing algorithm takes a unit of data and turns it into a random string of numbers and letters. Hashing ensures that the data is highly secure.

Cryptocurrency transactions have a privacy that cannot be achieved for financial payments since the transactions do not take place in a banking system controlled by a central bank but are carried out in decentralized networks. They are almost unknown.

Crypto transactions can be done easily: anyone can send and receive a variety of cryptocurrencies using a simple smartphone app or wallet. And a bank account is not always required to use cryptocurrency: some types of cryptocurrencies, including Bitcoin, Ethereum, and Litecoin, can be purchased with cash at a Bitcoin ATM. They can then send these coins to their wallet.

Payment transactions in cryptocurrencies can be carried out at any time: exchanges such as the New York Stock Exchange or the London Stock Exchange do not need to be operational to carry out transactions. It is a reflection of the fact that cryptographic transactions are carried out directly between counterparties in computer networks connected over the Internet.

Cryptocurrency payment transactions cost much less than paying in traditional currency through the banking system. They are also settled in much shorter periods of time than payment transactions through the banking system.

For comparison, cryptocurrencies like Litecoin, XRP, and others can be sent for a few cents or less. Bitcoin and Ether transactions can cost anywhere from ten cents to several dollars or more.

Payments for most cryptocurrencies settle in seconds or minutes. Wire transfers at banks often take three to five business days to settle and can cost much more.

The supply of Bitcoin is limited: there will only be 21 million Bitcoins in existence. Cryptocurrencies with limited supply such as Bitcoin, Litecoin and others are good hedges against inflation.

When central banks increase the money supply by printing more money, prices rise because more money corresponds to the same number of goods. The price of cryptocurrencies with a fixed supply measured in dollars also has a greater chance of rising.