The term cryptocurrency has entered the mainstream in recent years, given the popularity of its first iteration, the bitcoin.
Simply put, cryptocurrency is virtual currency that is kept secure by cryptography, the technology used to hide information.
This ensures that all users are kept anonymous and transactions are protected.
The most famous of all cryptocurrencies is the bitcoin, which was created in 2009 by a person or persons who went by the name Satoshi Nakamoto.
Cryptocurrency was designed to be a peer-to-peer currency, which means you can directly send a bitcoin to another person without having to go through a bank or a third party like Paypal.
Bitcoin, as well as other cryptocurrencies, are not maintained or backed by any banks or governments.
Instead, to ensure security and legitimacy, each transaction is recorded and verified on a public digital ledger that is stored by a large number of people.
Because the information is transparently held by more than one person, it minimises the risk of changing or falsifying the data.
With each new verified transaction, a new set of information is created for that particular bitcoin and added to the existing chain.
This technology, known as blockchain, is permanent and cannot be manipulated.
There will be a finite number of bitcoins in existence – 21 million – as a result of the bitcoin generation algorithm.
To create them, bitcoins have to be mined, which means they have to be verified and added to the public ledger.
This process involves using computers to solve a tough math puzzle in order to release new bitcoins.
For us regular folks, we can simply buy bitcoins using cash, credit card or bank transfer through sellers such as Coinbase, Circle or Bitstamp.
You can also buy a subunit in case the cost of a whole bitcoin is too prohibitive.
A millibitcoin is 1/1000 of a bitcoin; a microbitcoin is 1/1,000,000 of a bitcoin and a satoshi is 1/100,000,000 of a bitcoin. After buying a coin, you store it in a bitcoin wallet, which is a secure storage service.
You must create a strong password and guard your information well.
You can also use bitcoin banks to store your currency for you.
Prices are based on supply and demand, which makes it so unpredictable.
The value of a bitcoin has gone through a bit of a rollercoaster ride in the past year.
This June, a bitcoin is worth approximately US$6600, way down from over US$19,000 just last December.
You can Google to find out how much 1 bitcoin is worth in your local currency.
There are over 1000 other cryptocurrencies available.
Some of the more popular ones include Ethereum, Litecoin, Ripple and Monero.
There are brick-and-mortar stores that accept bitcoin, although in most cases, it’s used as a gimmick.
For example, if you’re in Singapore, you can buy a cup of coffee and a sandwich at Ducatus Café, which is owned by a cryptocurrency mining company.
You can also buy flowers at Hong Kong Flower Delivery in Hong Kong, which has a bitcoin ATM in store.
Unfortunately, the number of offline businesses that currently accept bitcoins are few and far between.
However, there are many online businesses, such as Steam, Microsoft and Expedia, that do accept the currency.