What is cryptocurrency and how does it work?

What is cryptocurrency? You may have heard the term a lot recently, but many of us still don’t know exactly what is.

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It’s an electronic, private type of money that has been making national headlines as it gains popularity.

Several types of cryptocurrency exist like bitcoin, dogecoin, and ethereum.

The best way to view cryptocurrency is as a commodity like gold. It has value and can be traded for other goods, but the catch with cryptocurrency is it can be done anonymously without having to rely on the government or banks.

It works like any other investment. A person is putting up their real money to buy shares of cryptocurrency to trade or sell them just like you would a stock to make a profit.

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There are no physical coins involved. Everything is done digitally – online. It’s called mining. In a way, cryptocurrency works like a secure, cloud based filing system much like Dropbox or Google Drive which uses a lot of electricity.

That is why Tesla CEO Elon Musk just announced he will no longer accept cryptocurrency for electronic vehicles.

In a tweet, he said the company is concerned about the rapidly increasing use of fossil fuel for bitcoin mining and transactions.

FOX 5 spoke to people in DC about it. 

“People were saying well, that’s a hypocrite, being so environmental friendly, but then investing in cryptocurrency which has a horrible carbon footprint,” Orion Koziolkiewicz.

“It has caused all the cryptocurrencies to drop tremendously, but it’s a good buying opportunity,” said Tony Booker.

Some, like Booker, love cryptocurrency while others are more skeptical.

“I think it’s a made up idea that people are agreeing that this is worth of value and it’s something that is very wasteful as far as taking up energy,” said Koziolkiewicz.

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“It’s digital currency. It’s currency that can be traded among individuals, but right now it’s a large creator of wealth. It’s a way for the small guy to get into the market and make a lot of money,” said Booker.

He adds there are some risks like the fact that it is extremely volatile. Crypto prices swing dramatically.

“You can make a lot of money in short of money in a short amount of time, but you can lose a lot of money, but the good thing is you only have to put up a small amount of money,” said Booker.

FOX 5 Reporter Sierra Fox asked James Harder, project manager Blockchain Ecosystem Catalyst with the Virginia Tech Department of Computer Science, about why people are interested in this.

“I think one of the biggest reasons people want to invest in cryptocurrency is because they do have the potential to be worth quite a bit more in the same way you might invest in something like a stock. The value of bitcoin has gone up substantially over the past year,” said Harder.

According to Harder, you can’t just show up to the grocery store and buy milk and eggs with cryptocurrency, but some companies are starting to allow people to use cryptocurrency like PayPal.  

We could see more use of the digital wallet in the future.

Interested in learning more about cryptocurrency? Check out the Virginia Tech Blockchain Initiative and the certificate program.