What Is Cryptocurrency and Should You Invest in It?

Bitcoin is a name most people recognize, but the broader term “cryptocurrency” may not be as familiar to everyone. Many might even mistakenly equate Bitcoin with all cryptocurrencies or fall prey to scams where people falsely claim to sell Bitcoin-like investments that aren’t related to crypto at all. This article aims to clear up these misunderstandings and help you decide if cryptocurrency is a worthy addition to your investment portfolio.

Understanding Cryptocurrency

Newcomers often say, “I don’t need to study the technology; I just want to trade.” This line of thinking might make seasoned crypto investors shake their heads. Focusing only on making money without understanding the fundamentals can lead to losses or even a deep-seated distrust in the crypto market.

Cryptocurrency, derived from the words cryptography and currency, refers to digital money secured through complex cryptographic methods. Unlike traditional currencies, cryptocurrencies like Bitcoin, Ethereum, and Litecoin aren’t physical assets. They exist as encrypted data on computers, represented by numbers that hold value.

To grasp this better, let’s consider an example of simple encryption using an MD5 hash. Encrypt the word “Hello,” and you’ll get this code: 6E795F1D3F0BA8EB3A9372CF2A20ACDD90A3F59E5A33583E7E7D19C818B416BB. If you reverse this process with the right key, you’ll see the word “Hello” again. Any slight change in the text completely alters the encrypted code. While this is just the basics, cryptocurrencies involve a lot more than that.

The Role of Public and Private Keys

Encryption alone isn’t enough for cryptocurrencies. Public-key cryptography steps in to allow safe and secure transactions. Here’s a simple analogy: Imagine a safe with two keys — one public and one private. The private key is like the owner’s key, which only they possess, while the public key is a copy that can be shared with others.

Think of a person named Somsak. He has a safe that uses two keys. Somsak keeps the private key, and he distributes the public key to friends and associates. Anyone can lock the safe using the public key, but only Somsak, with his private key, can unlock it. This principle allows anyone to send data securely to Somsak while ensuring only he can access it.

Now let’s take this further — Somsak can lock the safe with his private key and send it to others to verify that it’s really him who sealed it. This is the basis of a digital signature. The public key can unlock and verify that Somsak is the one who locked it, establishing trust in the sender’s identity.

What Does This Have to Do With Cryptocurrency?

Cryptocurrencies aim to address the shortcomings of traditional cash. When you hand over a banknote, it’s impossible to know everyone who handled it before you. Digital money, on the other hand, solves this traceability issue but comes with its own challenges.

If someone took a five-euro banknote, scanned it, and named the file “five-euros.jpg,” it would be easy to copy and paste it indefinitely. The recipient wouldn’t know if they received real money or a mere copy. This problem, known as “double spending,” is a key issue that cryptocurrencies tackle.

To resolve this, crypto transactions combine digital files with cryptographic signatures. A transaction consists of the digital money and the private key signature of the sender. The recipient can then use the sender’s public key to verify the legitimacy of the transaction.

The Ledger — A Foundation for Trust

What separates cryptocurrencies like Bitcoin from other forms of digital money is the use of a ledger called a blockchain. Much like a bank passbook, the blockchain records all transactions, making it impossible to alter or duplicate them. This ledger is decentralized, transparent, and publicly accessible.

Imagine opening a bank account. You walk into a bank with your money and receive an account number in return. With Bitcoin, however, anyone can create a public and private key pair — essentially a Bitcoin address — independent of any bank. This address functions similarly to a bank account number but isn’t controlled by any central authority.

Should You Invest?

With all this information in mind, you’re probably wondering whether you should invest in cryptocurrencies. One thing is clear: the value of Bitcoin has surged, drawing attention from investors worldwide. At the time of writing, Bitcoin’s price stands at 298,177 baht. But its allure isn’t just about its price; it’s about the underlying technology and the possibilities it unlocks.

Before jumping in, it’s essential to understand that investing in cryptocurrencies comes with risks and rewards. The market can be highly volatile, and while potential gains are substantial, losses can be equally significant. Investing responsibly means doing your research, understanding the technology, and staying updated on market trends.

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