If youve ever had a company or friend offer to pay you with Bitcoins or another type of digital money, youve encountered cryptocurrency, also called crypto-money or cryptoassets.

Cryptocurrency is a digital currency that is created through the use of encryption software. This approach is a solution to security and control issues that prevented a purely digital currency from being successfully developed in the past. If you hear someone talking about one of these currencies, its almost certainly in a cryptocurrency format. This type of digitally created and secured money is currently in a period of very cool experimentation, so lets take a look at how it work, why its popular, and where cryptocurrency is heading in the future.

How does a currency exist in a totally digital format? What is it based on? While the process varies a little between different cryptocurrencies, they all follow the same general system.

First, cryptocurrency chooses a base unit and how much that particular unit is worth when compared to other currencies (often, the U.S. dollar is used as a baseline). Some cryptocurrencies are more imaginative than others at this point. They try to represent debt registries, contracts, or the act of currency exchange itself. It can get a little weird, but ultimately the unitin some way relates to the value of other currency, as is true of all currencies in the world.

Units of cryptocurrency are then created, typically when a transaction occurs. The units are carefully formed and preserved through algorithmic encryption, then linked together in vast chains of data, where the currency can be tracked and exchanged.

However, at this point, cryptocurrency is still too vulnerable and too easy to fake. The currency units need to be timestamped and processed to make them more concrete and harder to copy. A third party developer can do this, but most cryptocurrencies prefer to crowdsource the process to those with the right hardware and software to mine the currency.

Mining uses algorithms to go through each transaction, encrypt the cryptocurrency, and add it to a digital ledger, essentially verifying it and cementing its position online. This process may also be referred to as consensus protocols orconsensus platforms, depending on the currency. This process is meant to make the currency impossible to duplicate, though whether its successful is up for some debate.

Some cryptocurrencies are highly centralized, with someone usually the organization that created the process/software making decisions about how much currency is created and how it is used. Other types are very decentralized, controlled only by how and where people are willing to use them.

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Cryptocurrency explainer: Everything you need to know

While the movement from traditional banking and financial institutions to cryptocurrency investments has been slow for some, others have been biding their time and waiting for the appropriate moment to make the switch. According to a recent report by Coin Telegraph, John Mack, the former Chief Executive Officer for Morgan Stanley, is in the latter category. Mack is reportedly preparing to enter the cryptocurrency game and is looking to launch an ICO at some point later in the year. Why would Mack be interested in joining cryptocurrency investors in the hottest new trend?

Mack's project at this time is Omega One, a platform which he says "is going to be transformative because it benefits the entire ecosystem--making crypto assets cheaper and easier to access," according to the report. Mack claims that he has been following and investing in digital currencies for several years, and he feels that Omega One is uniquely prepared to transform the industry. His investments in the startup were reportedly made via Venture One, a portfolio company which he backs privately. The goal of Omega One seems to be to push digital currencies into broader public view, making them more available and attractive to potential investors. Mack is currently the sole investor in this project, although his status as a finance legend will likely draw in other interest as time goes on.

According to Alex Gordon-Brander of Omega One, his company provides "the bridge between traditional capital markets and the crypto markets." Omega One, he says, "will provide everything from balance sheet intermediation and a trusted counterparty." He points to the "very first signs of institutional adoption of crypto markets" as a sign that his company has an interested and eager audience, as well as room in which to make an impact.

Analysts at Coin Telegraph suggest that Mack's move into the cryptocurrency space has been strategically timed, as the cryptocurrency market itself has grown and matured significantly over the past year and a half. With a clear sign that institutional investors are interested in entering the field, there remains a bit of mystery as to how these investors could best make use of their assets. This is where a company like Omega One could come in, or at least that's what Mack and the company's leaders hope. Regulation and education regarding the digital currency world are some of the largest barriers at this point. Experienced financial professionals like Mack may hope that their background in trading securities and assets of all kinds will allow them the benefit of being able to learn about and improve upon the way that cryptocurrencies are bought and sold, too.

Omega One will reportedly offer clients the opportunity to hold native tokens. It aims to launch via an ICO at some point later this year, after August and before December.

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Morgan Stanley Ex-CEO to Launch Cryptocurrency Game-Changer - Investopedia

South Korea's national legislature was the site of a public hearing on Tuesday in which recently proposed cryptocurrency regulation saw new discussion.

According tolocal media reports,Korean lawmaker Park Yong-jin used the forum, over which he presided, to call for consumer protections to be added to the bill.Aimed at laying the groundwork for regulation in South Korea, the public hearingcomestwo weeks afterPark first unveiled the plan, which would capture cryptocurrencies such as bitcoin and ether.

Panelists in the hearing includes lawyers, professors, an official from South Korea's top financial regulator (the Financial Services Commission), as well as a victim of a cryptocurrency-related Ponzi scam.

As such, much of the focus of the talk was on strengthening consumer protections for industry startups and technologists.

Park, in particular, voiced concerns that trader protection is a difficult task without a legal basis, stating:

"Without a legal framework, we can neither regulate, nurture, nor support the cryptocurrency-related industries. Also, the legal vacuum prevents those who committed virtual currency-related crimes from being punished."

Still, there were positive remarks as well. Jung Sun-seop, a professor of law at Seoul National University and director of its Center for Financial Law, argued thatthelaw should legalize cryptocurrencies as a means of payment.

Lee Dae-ki, a researcher at the Korea Institute of Finance, argued that the trading and brokering of cryptocurrency should be regulated prior to the currency itself, due to their potential for criminal abuse.

Likewise, Chae Won-hee, a representative of a group of Ponzi scheme victims, said the punishment on cryptocurrency-related criminals should be toughened to prevent financial scams.

Kim Yeon-june, representing the FSC, said the government had yet to decide whether a cryptocurrency should be brought under financial regulations.

Korean national assembly building via Shutterstock

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at [emailprotected].

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Korean Lawmaker Calls for Consumer Protection in Cryptocurrency Bill - CoinDesk

- Recent cryptocurrency losses have been pulled back.

- Volatility remains until new proposals come into force.

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Fears that blockchain may split into two, creating two different bitcoins (BTC), have lessened in the past two days as bitcoin miners have begun to support a new bitcoin improvement proposal (BIP) that would help solve the long-running scaling problems. The proposal BIP 91, would introduce SegWit2X to the blockchain to help speed up the transaction time from the current limit of 1 megabyte every 10 minutes. According to many in the industry, BIP 91 would make implementation of SegWit2X less risky and would decrease the probability of a blockchain split (hard fork).

Over the past couple of days, bitcoin miners have begun signalling support for BIP 91 by adding a piece of code to each new block transaction. If the required 80% support is reached before August 1, the new protocol would be locked-in, lessening the chances of a hard fork. The activation window is 336 blocks and if the 80% target is hit, BIP 91 locks-in and after another 336 blocks are mined it becomes activated.

The latest signalling rate is seen just under 80% of the last 144 blocks mined with several of the largest BTC miners already showing their support for the new proposal, including AntPool, BitClub, Bixin, BTC.com and BitFury.

With the chances of a blockchain split lessening, the price of BTC and most other digital currencies have recovered from Sundays heavy sell-off. The future though may be less certain with the recent volatility underscoring the need for cryptocurrency traders to tread carefully in the weeks ahead. The chart below shows BTC still trading below its 100-day ema with a potential resistance level around $2419.

Chart: Bitcoin Four Hour Timeframe (June 14 - July 19, 2017)

Chart by IG

Ether (ETH) in the meantime has seen even sharper swings than peer bitcoin slumping from $225 on Sunday to a $137 low before rebounding to trade over $257 late Tuesday.

Chart: Ether Three Hour Chart (July 7 July 19, 2017)

Chart by TradingView.

Ethereum however, may soon come under increasing State regulation, over the recent surge in Initial Coin Offerings (ICOs), the cryptocurrency markets equivalent of traditional equity Initial Public Offerings (IPOs).

Market Moves/Capitalizations July 14, 2017.

Cryptocurrency

Price/Change%

Market Cap

BITCOIN

$2307 -0.94%

$37.971bn

ETHEREUM

$221.4 +9.5%

$20.68bn

RIPPLE

$0.176 -3.21%

$6.765bn

LITECOIN

$41.93 -4.84%

$2.183bn

ETHEREUM CLASSIC

$15.45 -2.03%

$1.448bn

--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

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Cryptocurrency: Bitcoin Retains Gains as Hard Fork Fears Recede - DailyFX

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Governor of the Austrian Central Bank Ewald Nowotny warned users about the speculative nature of virtual currency. Nowotny also serves as a member of the governing council of the European Central Bank (ECB).

On July 19, governor of the Austrian Central Bank (German: Oesterreichische Nationalbank) Ewald Nowotny warned against cryptocurrency usage in an interview with newspaper Kleine Zeitung. Nowotny worries that the general public fails to grasp the potential psycho-social ramifications of a virtual currency correction. When asked about Japans recognition of bitcoin as a means of payment, Nowotny expressed his reservations.

Bitcoin is not a currency, he said. Bitcoin lacks the one thing that makes a good currency, namely stability. Instead, he classifies bitcoin as an object of speculation.

His hesitation is understandable, especially in light of bitcoins impending User Activated Soft Fork. Nonetheless, cryptocurrency has taken root in Austria. sterreichische Post, Austrias official postal services provider, recently announced its partnership with a Vienna startup to allow the exchange of euros for bitcoin.

Significantly, Nowotny is not completely pessimistic about cryptocurrency. He explains that Austria does not ban it as a banknote, but acknowledges that you have to let the people know what they are doing. Previously, he had compared cryptocurrencys popularity to the Tulip Crazeof the 16th century Holland.

Nowotnys measured approach is exactly what a concerned public would hope for in a central banker. He recognizes the inherent dangers and seeks to insulate the Austrian economy.

[Bubbles] can have negative psychological effects, he said. This is the danger we see but I would not overrate it either.

As a member of the European Central Banks governing council, Nowotny may inform the approach of his colleagues. In May, ECB president Mario Draghi encouraged the close study of distributed ledger technology.

Quotes translated from German using Google Translate.

Matthew is a writer with a passion for emerging technology. Prior to joining ETHNews, he interned for the U.S. Securities and Exchange Commission as well as the OECD. He graduated cum laude from Georgetown University where he studied international economics. In his spare time, Matthew loves playing basketball and listening to podcasts. He currently lives in Los Angeles.

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