The future of financial currency is becoming more digital each year thanks to the growing popularity of cryptocurrency. However, cryptocurrency is inherently risky. For starters, cryptocurrency is not a legal tender in Canada at this moment. It’s also far more unpredictable and unstable compared to other investment options. Learning the five key terms listed in this article will help you understand the risks involved and navigate this new virtual future.
What is cryptocurrency?
Cryptocurrency is a peer-to-peer digital payment system. It allows anyone from around the world to send or receive payments. When you complete a crypto transaction, the information of the exchange is recorded on a public ledger and the currency itself is stored in your digital wallet. In theory, it gives people control over the way they spend their money. That said, crypto is a very volatile and risky investment even for the most skilled financial experts. Furthermore, businesses are still adapting to using this form of digital currency as payment so don’t throw out your debit cards and cash!
Five Key Terms You Should Know About Cryptocurrency
1. Crypto Assets: these are online assets that secure data using cryptography, share it using a peer-to-peer network, and record it using a “blockchain” which is a ledger system that keeps track of the transaction. These aspects combined show ownership of the digital asset.
2. Stablecoin: these are crypto assets that attempt to hold their stable value by referencing another form of official currency like the US Dollar, by tying themselves to other crypto coins, or by using algorithms. Despite the controls in place, stablecoins still struggle to maintain their value at all times.
3. Blockchain: as referenced earlier, a blockchain is a type of online record of transactions or a ledger. It helps identify ownership especially whenever crypto assets are traded.
4. Digital Wallet: Everyone has a physical wallet for their cards and money and cryptocurrency is no different. A digital wallet stores your crypto assets online (hot wallet) or in a physical device (cold wallet).
5. Crypto Trading Platform (CTP): this is a space where crypto assets can be bought, sold, or exchanged. These spaces are often regulated to provide you with more protection while conducting transactions. That said, many CTPs don’t come with standard consumer benefits like customer service that you see with banking institutions.
Knowing these five terms puts you ahead of most people when it comes to your crypto lingo. For more information about the risks of using cryptocurrency, please visit the Government of Canada’s website.