A cryptocurrency is a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units & verify the transfer of assets. Cryptocurrency is a defining and disruptive innovation in fast-moving world of fin-tech, a pertinent response to the need for a secure medium of exchange in the days of virtual transaction.
Cryptocurrency is an electronic currency, short & simple! However, what’s not so short and simple is exactly how it comes to have value. Then what is this digital currency stand for?
Cryptocurrency is a digitalized, virtual, decentralized currency produced by the application of cryptography which is the “computerized encoding and decoding of information”. In the most primitive form of the term, cryptocurrency is a proof-of-concept for alternative virtual currency that promises secured, anonymous transactions through peer-to-peer online mesh networking. In simple words, it is an internet based medium of cryptography exchange to conduct financial transactions
Cryptocurrencies use decentralized control as opposed to centralized digital currency and central banking system. It is more of a property rather than actual currency. It is in direct opposition to what is called fiat money or you can say cryptocurrency is a means to purchase, sell and invest that completely avoids both government oversight and banking systems tracking the movement of your money.
What is the importance of Cryptocurrency?
Many of us are unaware about how effective cryptocurrency is! Cryptocurrency basically gives you a great deal of anonymity. It can also keep the government from tracking your every purchase and invading your personal privacy.
These days, the global economy is just moving towards a complete digital eco-system and therefore everything starting from money transfer to investment is going paperless. Cryptocurrency is the latest as well as the most capable addition to field of digital payment. It is mainly designed for the exchange of digital information. Some of the reasons which have contributed to its popularity are:
- Asset transfers: Cryptocurrency is a method that on a certain level can be used to enforce & execute two-party contracts on the commodities like real estate & automobiles. Cryptocurrency ecosystem is used to ease some specialist transfer methods.
- Transactions: In the traditional method of business dealings, legal representatives, agents and brokers can add some great cost and enough complication to even the straightforward transaction. Besides, there are brokerage fee, commissions, and some other special conditions that may apply as well. Contrary to this, cryptocurrency transactions are one-to-one affairs that mainly take place on some peer-to-peer structure of networking.
- Transaction fees: Transaction fee often take enough bite out of the assets of a person, mainly if the person performs loads of financial transactions every month. But as the data miners do number crunching that mainly generates different type of cryptocurrencies get the compensation from the network involved and therefore here the transaction fees never apply.
- More confidential transaction method: In the case of cryptocurrency, every transaction made between two parties is considered as a unique exchange where terms can be agreed & negotiated. Here the information exchange is performed on a “push” basis where one can exactly send what he/she likes to send to the recipient. This thing completely protects the privacy of the financial history as well as threat of identity.
- Easier trading system globally: Cryptocurrencies are mostly recognized as the legal tenders on the national levels, these are not dependent on the interest rates, exchange rates, transaction charges or any other assessments. By using peer-to-peer method of blockchain technology, transactions and cross-border transactions that can be performed without any complications.
- Greater access to credits: The Internet & digital data transfer are the media that ease cryptocurrency exchanges. Thus, these services are available to people with knowledge of cryptocurrency networks, a workable data connection and immediate action to the relevant portals & websites. Cryptocurrency ecosystem is capable of making transaction processing and asset transfer available to willing people.
- Stronger Security: After authorizing cryptocurrency transfer, this can’t be reversed like the “charge-back” transactions of different credit card companies. This can be fence against the fraud that needs to make particular agreements between sellers & buyers about refunds of the return policy or a mistake in the transaction.
- Adaptability: There are around 1200 types of altcoins or cryptocurrencies present in the present world. Some of these are a bit of transitory, but an adequate portion is used for specific cases, which depict the flexibility of this phenomenon.
Cryptocurrency comes in quite a few forms. Bitcoin was the first and is the standard form which all other cryptocurrencies pattern themselves. Some other cryptocurrencies are Litecoin, Namecoin, Peercoin, Dogecoin and Worldcoin to name a few. These are called altcoins as a generalized name.
The way cryptocurrency is brought into existence is quite fascinating! How cryptocurrency works is more enchanting even. Unlike gold, cryptocurrency is merely an entry in a virtual ledger which is stored in various computers around the world. These entries have to be ‘mined’ using mathematical algorithms. Individual users run computational analysis to find particular series of data, called blocks. The miners find data that produces an exact pattern to the cryptographic algorithm.
What does Cryptocurrency mining mean?
Cryptocurrency mining involves the creation of coins by miners and confirming the transactions. The mechanism which works in the database of cryptocurrencies consists of a network of peers. Each of the peers has record of complete history of all transactions and balance of every account. A transaction is simply the amount of Bitcoin shared between 2 identities and is signed by sender’s private key. After signed, a transaction is broadcasted in the network sent from one peer to every other peer.
The Final Verdict
In the wake of industrial revolution, this digital currency is an imperative part of technical division. The advantages of cryptocurrency are innumerable. From the point of a casual observer, this rise may look exciting, threatening and mysterious all at once. Recently, Bitcoin may have taken a dip to give spotlight to other cryptocurrencies, but this does not signal any crash of cryptocurrency itself.
If cryptocurrency aspires to become an essential part of the existing financial system, it will have to satisfy very dissimilar financial, regulatory and societal criteria. It will need to be hacker-proof, consumer friendly and heavily safeguarded to offer its fundamental benefit to the mainstream fiscal system. It should preserve user obscurity without being a channel of money laundering, tax dodging and internet fraud.
As these are must-haves for the digital system, it will take few more years to discern whether cryptocurrency will be able to complete with the real world currency in full swing. While it is likely to happen, cryptocurrency’s success of undertaking the challenges will determine the fortune of the monetary system in the days ahead.
Originally published at https://livekaktus.com on September 5, 2019.