Cryptocurrency has dominated news cycles intermittently since the launch of Bitcoin in 2009, often focusing on the volatility of the cryptocurrency markets, the risks associated with owning cryptocurrencies, and the scandals and schemes that have – unfortunately – painted the industry with an ugly brush.

But there is more to cryptocurrencies than scandalous headlines. With a market cap of nearly $3 trillion dollars and expectations that cryptocurrencies will disrupt $867 trillion in traditional assets (World Economic Forum), there’s no debate: cryptocurrencies are here to stay.

Simply put, a cryptocurrency is a form of digital money. Before trying to understand cryptocurrency, it’s important to understand the basics of blockchain.

Blockchain – an immutable ledger for all types of transactions

Blockchain is the technology behind cryptocurrencies. At its core is a sequence of blocks – or groups of transactions – that are chained together and distributed among users.

Financial institutions use ledgers — essentially databases — to keep track of transactions; deposits and withdrawals are tracked and assigned to the right accounts. Financial institutions own that ledger and control access to it.

Blockchain is a digital ledger of transactions. That ledger is decentralized, meaning no one person or institution owns it. The blockchains on which cryptocurrencies are built are public, providing transparency and confidence in the transactions they record.

Once data is recorded in a blockchain, it’s almost impossible to change or remove it, making hacking and fraud nearly impossible. In simple terms, it is not possible to modify any block without changing the entire chain. The blockchain works as an unalterable digital ledger.

Blockchain technology is changing many facets of society beyond cryptocurrencies. The blockchain has given rise to smart contracts, which automate the execution, control, and documentation of legally relevant actions as defined in an agreement. Institutions and organizations are increasingly seeing the value of smart contracts, and even the Government of Canada has adopted the technology to improve transparency in government funding.

The takeaway: Blockchain technology is essentially an unchangeable ledger of activity and transactions and has applications beyond cryptocurrencies.

What is cryptocurrency, anyway?

As cryptocurrencies become mainstream, more people are using them for electronic payments, much like you do with traditional currencies, and as an investment opportunity.

With traditional currencies – like the Canadian dollar, for example – there are some serious challenges, including:

  • Outdated payment systems (think of wire transfers, and the hassle that comes with them, particularly when sending money abroad)
  • Expensive and slow transactions (third parties like banks and brokers must play a role in the exchange of traditional currencies)
  • Centralization Risk (centralized databases can be exposed to errors and are of the sole purview of the centralized party)
  • Financial inequality (2 billion people are currently unbanked because they can’t access financial services)

Cryptocurrencies can solve some of these problems.

  • Cryptocurrencies can contribute to preventing corruption: The technology behind cryptocurrencies – blockchain – is decentralized, meaning no single person or entity holds the power, and transactions are approved by consensus.
  • Cryptocurrencies help diversify: Diversification of assets is an important part of good portfolio management.
  • Cryptocurrencies allows people to be in charge of their own money: There is no need to rely on third parties like banks, and the transaction fees that come with them. That said, holding and storing cryptocurrencies safely does pose a challenge. More on that later.
  • Cryptocurrencies can help serve the unbanked: More people have mobile phones than have bank accounts, and anyone with a mobile phone can get started with cryptocurrencies.

With opportunity comes risk, and it’s not different for the world of digital assets. Real risks associated with cryptocurrencies include:

  • Volatility (the cryptocurrency hype has led to price fluctuations)
  • Lack of regulatory oversight (regulatory oversight, which is still evolving when it comes to digital assets, can contribute to making the market safer and to protecting investors)
  • Recovery (there is no guarantee that you can recover your assets if you lose or misplace your method of access – be it a phone, a cryptocurrency wallet, or other storage mechanism)
  • Crime (it’s generally agreed that without proper regulatory oversight and protection, cryptocurrencies can serve as a financial enabler of illegal activity)

That’s where Brane comes in.

We work with financial institutions to keep digital assets safe and secure. Our cutting-edge, blockchain-native technology is purpose-built to manage risks, ensure no single point of failure, and comply with regulatory requirements. Brane’s commitment to security, assurance, and trust means that everyone can benefit from the transformational opportunities of blockchain with confidence.

Disclaimer: Brane does not provide investment advice or endorse any specific cryptocurrencies.

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