Risks of Cryptocurrency - Part 1 - What Makes the Network Secure?

Risks of Cryptocurrency

What are the risks inherent in investing in cryptocurrency? Pandacoin’s Crypto Crash Course will fill you in on the precautions to take before you take the plunge.

Whether you have just heard of cryptocurrencies like bitcoin from the media or you have been keeping an eye on them for a while, you might be trying to figure out whether or not it would be a good idea to involve yourself. Here, we will be reviewing both the advantages and risks of cryptocurrencies as they compare to government backed fiat currencies (Dollars and Euros etc).

The first and most primary component that makes cryptocurrencies something to be desired is that they are de-centralized. That is they are not controlled or regulated by a single entity and the flow or transaction of these currencies are not funneled through a single hub for control and monitoring. The information, transaction data, and actual currency flows through the blockchain, which is a conglomerate of all of the transaction data related to the coin in question, from coin creation via mining or interest, to people trading, buying, selling, or tipping with the coin.

This blockchain does not exist on a single database or computer, but instead exists on every computer that holds a core wallet. That is, if you have a main wallet and you have it up and running, your computer contains the blockchain and may be assisting to carry out transactions. Your computer, however, is not the only one, as every single individual who has the main wallet has the blockchain on their computer. Because of this, it is notoriously difficult for the blockchain to be compromised, as it would involve the destruction of every single copy of said blockchain that exists in the entire world, on every single computer that is online and has a copy of that blockchain on it.

decentralization

Decentralization – blockchain does not exist on a single database or computer, but instead exists on every computer that holds a core wallet.

Further, online transactions are fantastically easy, and usually very fast. With bitcoin, speed is usually rather unimpressive, however with Pandacoin, for example, transactions take place usually within a minute or less, and can sometimes appear in mere seconds. In addition, transaction fees are laughably low, ranging from absolutely nothing for very small transactions in many cases, to very small fractions of pennies per transaction. For Pandacoin, this transaction fee is usually 1 PND for transactions smaller than a few million PND. For reference, that’s less than 0.0001% for a transaction fee.

Further, these transactions are extremely secure, taking place via the expansive peer to peer network that exists among all individuals that are securing the block chain via mining (fir proof of work coins) or via staking with their wallet (for proof of stake coins). In fact, the only way that transactions can be stopped, halted, reversed, or corrupted is if there is a single individual or group that owns more than 51% of the network (this is called a 51% attack), which is usually extremely unlikely.

On occasion, this can happen for coins that are POW, as if an individual or group with a very large collection of mining machines comes along, they might have more mining power than the entire pool of miners that mines a less popular coin, thus taking control of the blockchain. With POS coins, this is almost impossible, and otherwise rather expensive to carry out, while also producing absolutely zero possibility for profit on the part of the attacker, rendering POS coins like Pandacoin immune to this threat.