Everyone is talking about them, but what cryptocurrencies really are?

Cryptocurrencies are digital currencies. They are cryptography-based currencies that do not exist in physical form and, unlike traditional currencies, are neither controlled nor managed by any central authority, which is why they are called 'decentralised.

Cryptocurrencies are therefore used in the digital world as an encrypted exchange medium. Technically, they are virtual assets that are exchanged on the blockchain: this is a closed network, a kind of digital register in which all transactions that are carried out are stored.

The most famous crypto is Bitcoin, which was the first to be created in 2009, but there are currently over 17,000 cryptos worldwide.

Bitcoin and the rise of crypto

Cryptocurrencies can be used to buy goods or services or they can be held as a form of investment. Just think of Bitcoins, which have seen their value soar over the years.

The more experienced may also decide to buy and resell cryptos in the short term, trying to take advantage of moments when their value may fall and rise again.

It is the supply-demand dynamic that determines the economic value of cryptocurrencies, i.e. how many people are interested in buying the digital currency compared to the amount of the currency itself available for purchase.

Bitcoin is the first crypto ever created: it was conceived in 2009 by Satoshi Nakamoto, the pseudonym of a mysterious inventor (or a group of inventors), who developed the idea of a digital currency linked to blockchain technology to manage transitions and which would use cryptography to generate new currency and attribute ownership.

Bitcoin's value is only determined by supply and demand: the maximum total amount of Bitcoins was set by Satoshi Nakamoto himself at 21 million and today it is estimated that more than 19 million of them are already around.

From Bitcoins, a new crypto, Litecoin, was derived at the end of 2011, launched by Charlie Lee as a version of Bitcoins featuring faster transition times and a more significant total amount of currency available.

However, at the moment, the second most important cryptocurrency is Ethereum, which was founded in 2015. It is also blockchain-based, but in addition, it offers the possibility of creating decentralised contracts and applications, called dApps.

How cryptocurrencies work

The blockchain guarantees a secure, anonymous and encrypted digital purchase or trade: miners record each transaction. These operators write the blocks on the blockchain and are paid in crypto for their work.

This means that many computer experts and cryptographers from around the globe are constantly working on the blockchain, which guarantees its network safety.

Mining is costly in terms of servers and energy required, so it is now done mainly by large, specialised companies or groups of computer scientists.

To encourage mining, Bitcoin organises a lottery in which miners can compete against each other to solve a mathematical problem: new Bitcoins go to the winner, in addition to those already on the market.

Each cryptocurrency - such as Bitcoin, Ethereum and Polkadot - has its own blockchain, a large virtual register that is updated in real-time with every purchase and sale of that digital currency and that is accessible to all users on the platform.

The fact that each transaction is public and visible to all guarantees its transparency and security. No transaction can be manipulated, so neither the origin nor the destination of transferred funds can be changed.

As is to be expected, even in the world of cryptocurrencies there is no shortage of critical issues: they are complex instruments that follow their own logic and they are characterised by high volatility. In addition to value fluctuations, one must also bear in mind that they are relatively new instruments. We will therefore have to wait and see how they will behave over the next few years.

The advantages are still numerous: it is possible to use the blockchain to transfer digital money worldwide, without the need to use banks or other payment circuits. All this is done through transactions that, thanks to the blockchain, are secure even if no entity - company, country or bank - controls them.

In addition, when using cryptos, unlike all other types of money exchange on the Internet, one does not have to provide any personal or financial information to third parties, such as banks or credit verification agencies, which makes online scams, such as identity theft or credit card cloning, impossible.

Cryptocurrencies, therefore, present themselves as a viable alternative to the traditional banking system. They can circumvent various financial problems and help combat economic inequalities.

Anyone with only a smartphone and an Internet connection can buy crypto wherever they are, even in countries where economic and financial freedom is limited or where high inflation undermines the value of the official currency.

Investing in crypto with Oval

Last month we launched Crypto, the new in-app section dedicated to cryptocurrencies.

With Crypto, you can invest in your favourite cryptocurrencies starting from 1€, and orders are executed instantly so that you can sell and buy in real time.

Within the section, you will find Bitcoin, Ethereum, Litecoin, Solana, Polkadot and others. You can diversify your investment portfolio further and use Smart Rules to automatically and recurrently increase your positions.

What are you waiting for? Enter the app and discover Crypto investments in full Oval style!

Cryptocurrencies are unregulated assets with no investor protection. Oval doesn't provide financial advice.