Technology has changed the world, and it is having a big impact on the way we interact with our finances. In our day-to-day habits, consumers are making substantial changes to the way we spend our money. The evolution of contactless payments such as Apple Pay and Samsung Pay has only accelerated our growing preference for digital payments and our expectations that our transactions are quick and secure. This digital acceleration is opening up more discussion about how quickly Australia will become a cashless society. With the added impact of COVID-19 making cash an unhygienic payment choice, it is likely Australia may become cashless within the next decade.
In more recent years however, we have seen the emergence of a new payment system in the form of digital currencies. But with people still feeling sceptical about the safety of contactless payments in general, what do we know about the safety of digital currencies?
Digital currencies are a payment type that does not rely on banks to facilitate transactions. You have probably heard about them often in relation to cryptocurrencies like Bitcoin or Ethereum, which are a form of digital currency, but not all digital currencies are necessarily crypto.
Digital currencies are usually used to transact payment for goods and services and are more likely to have their value pegged to some form of commodity, whereas cryptocurrencies usually do not peg their value to a commodity. For example, a digital currency like Qoin, pegs the value of the coin to the transaction of goods and services through businesses, rather than being unpegged and letting markets fluctuate their value. This style of digital currency may provide more stability on their value when they are pegged to a commodity that has historically experienced less fluctuation.
Digital currencies have an interesting value proposition for consumers. By using digital currencies, users are able to make payments to anyone in the world, from any location. Unlike cash, the money exists as a digital entry, and there is no physical asset. For those who already use contactless payments, this format won’t seem much different to the same way your bank balance is displayed through your mobile apps.
Where digital currencies really shine however is through their use of blockchain technology as their software foundation. Blockchain technology was invented for the first major cryptocurrency, Bitcoin. Since then, the technology has made a name for itself even outside the digital currency world. Well known for its complex and highly secure processing structure, blockchain is a natural fit for digital assets, which need a uniquely secure operating system to protect against online fraud.
What does being built on the blockchain actually mean for digital currencies? The use of blockchain software means all transactions made are recorded into blocks on the ‘blockchain’ before they are time stamped and filed away. The process is quite complex, however the benefit of this complexity is that hackers find it very difficult to tamper with transactions completed on blockchain. These transactions also require two-factor authentication, making blockchain one of the most secure technologies available to the finance sector. For many digital currencies, this means that you may be required to enter a username and password, followed by a code or Seed Phrase, further increasing the security of your payments.
Whilst every online technology has the potential for security breaches, industry body Blockchain Australia notes that blockchain data cannot be altered in any instance, and this aspect of the technology gives users full confidence in the security and authenticity of the records. Blockchain is a unique and new technology for the broader financial system, and has revolutionised how financial data is stored, and how it is protected.
Tips for safe digital currency investments
Like with all financial products, there is a risk factor associated with digital currencies, but they are quickly becoming some of the most favoured investment opportunities. Below are two top tips to make your investment as secure as possible:
Research different exchanges
Before you invest any of your money, it’s important to learn about your exchanging, or trading options. Is the exchange trustworthy, does it have a good track record? Will you be able to trade at any hour of the day or is trading restricted? How much will it cost you to trade your digital currency on the exchange, and how long do transactions take to process? Take note of reviews and speak to experienced investors, ensuring you make an educated choice.
Know how to store your currencies
Digital currencies once bought, must be stored somewhere, and in the world of digital currencies, that doesn’t mean your tattered old wallet or purse! For digital currencies, you’ll need to choose a digital wallet, and these will vary in requirements, security and have their user different benefits. Some digital currencies like Qoin have an inbuilt wallet feature for convenience and will have extra safety measures such as two-factor authentication. Evaluate each digital wallet carefully. Can you access your currency with ease? Does the digital wallet have a built in exchange, or consumer directory? What safety measures does the wallet creator have in place, and what is required on your part to keep your currency safe?
The world of digital currencies can be overwhelming to a newcomer, but arming yourself with as much information as possible is the best way to ensure you get the most out of your digital currency journey.