Technology has helped add efficiency and modern conveniences to daily life, and now computer experts have applied digital traits to new, online currencies. Cryptocurrencies, such as bitcoin, only exist digitally and their decentralized nature can offer a number of advantages. However, as these currencies continue to grow, it’s important to know the risks regarding their use.
Most cryptocurrencies are decentralized and work without administrators or a central bank. Instead, a network of users makes transactions directly between each other, and a shared system of private keys and public ledgers authenticates the entire system. Bitcoin, the most popular cryptocurrency, encourages users to participate in this system by rewarding them with additional bitcoins. In fact, this is the only way that new bitcoins are put into circulation.
The design of cryptocurrencies offers a number of potential benefits:
Cryptocurrencies—and bitcoin in particular—have greatly increased in popularity over the past few years. Japan declared bitcoin legal tender in 2017 and online services like Microsoft, Overstock and PayPal also accept the currency. While accepting cryptocurrencies may help attract customers, there are some important risks to keep in mind:
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