What is Crypto Currency?
Cryptocurrencies, also known as virtual currencies, cryptos and digital currencies, are a form of electronic money. They do not physically exist as coins or notes. A cryptocurrency unit, such as a bitcoin or ether, is a digital token. These digital tokens are created from code using an encrypted string of data blocks, known as a blockchain.
Cryptocurrencies are used as payment systems to execute contracts and run programs. Anyone can create a digital currency, so at any given time there can be thousands of cryptocurrencies in circulation.
What is Blockchain Technology?
Blockchain is a form of database in which data is stored in blocks that are then chained together. As new data comes in it is entered into a fresh block. Once the block is filled with data it is chained onto the previous block, which makes the data chained together in chronological order.
Blockchain is most commonly used at this time as a ledger for transactions.
Based on a peer-to-peer (P2P) topology, blockchain is a distributed ledger technology (DLT) that allows data to be stored globally on thousands of servers – while letting anyone on the network see everyone else's entries in near real-time. That makes it difficult for one user to gain control of, or game, the network.
In Bitcoin’s case, blockchain is used in this way, as a decentralized public ledger so that no single person or group has control—rather, all users collectively retain control. This is one of the factors that gives crypto currency its appeal.
How initial coin offerings (ICOs) work
An ICO is a way a project can raise money over the internet. You invest in an ICO by sending money or cryptocurrency to a blockchain project. In return you receive digital tokens related to that project.
ICOs are speculative, high-risk investments. Many ICOs are for projects that:
are experimental
are at a very early stage of development
may not have even started yet
Some projects may take years before they become commercially viable, if at all. A large number of ICOs fail or do not increase in value.
ICOs sound similar to initial public offerings (IPOs). But ICOs usually don't offer any legal rights and protections. Investing in an IPO means you are investing in an established company or asset, rather than a project.
While ICOs use the internet to raise money they are not the same as crowd-sourced funding. Crowd-sourced funding offers basic investor protections under Australian law.