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What is Cryptocurrency? Everything you need to know

Today, cryptocurrencies have opened a new market for themselves in this online domain. They have got praised for numerous reasons such as transparency, portability, inflation resistance, and divisibility.

Photo by Kanchanara / Unsplash

Article Index:

1. Introduction

2. What is Cryptocurrency?

3. Why does Cryptocurrency gets referred to as Digital Currency?

4. How does Cryptocurrency work?

5. Types of Cryptocurrencies

6. How is Cryptocurrency different from regular currency?

7. The Salient Properties of Cryptocurrencies

8. Advantages and Disadvantages of Cryptocurrencies

8.1 Advantages

8.2 Disadvantages

9. Conclusion

1. Introduction:

Cryptocurrency is a word that gets used many times in our daily lives due to its high value in investments or purchases. It might be a new word for those away from online banking, but it is quite a common word for those who are in this field. Every day you will find many people associated with the banking or investment industry who give their opinions on the working or future of Cryptocurrency.

Also, check out: What is Blockchain?

2. What is Cryptocurrency?

But what is this Cryptocurrency? Why is it a hot topic for most industry enthusiasts? In simple words, Cryptocurrency is a digital or virtual currency that gets secured under cryptography. Cryptography is a tool that uses mathematical operations and sets calculative codes or algorithms which are hard to decipher. With the help of cryptography, digital pieces of information get secured within Cryptocurrency.

3. Why does Cryptocurrency gets referred to as Digital Currency?

Cryptocurrency is unlike our actual currency, where we can touch or feel it. It is a sort of online money used to purchase or exchange assets without providing any physical sensation. Cryptocurrency is also derived from the word ‘cryptography,’ the encryption technique used for securing its information and network.

Many cryptocurrencies are based on blockchain technology; the distributed ledger is spread across an array of computers. Just like Blockchain technology, even Cryptocurrency is a decentralized network. Cryptocurrencies are not issued or authorized by any third-party regulations or government authorities; hence, they are immune from their interference or manipulation.

Cryptocurrencies can get exchanged between two parties by using public or private keys. Using these virtual currencies, users can pay less as their transaction fees as their digital currencies do not attract a heavy toll as transaction fees like other financial systems.

4. How does Cryptocurrency work?

Virtual currencies allow for secure online payments, which are represented by ledger entries internal to the system. This process of working gets denominated by virtual tools called tokens.

Cryptography, as we already discussed above, refers to the various encryption techniques used to safeguard these transactions or entries. So, digital currencies use special encryption techniques to secure your information or payment transactions.

5. Types of Cryptocurrencies:

The most prominent Cryptocurrency is Bitcoin, the first type of digital currency launched in 2008 by a group of anonymous persons called Satoshi Nakamoto. Today, we can find lots of digital currencies in this domain. Some of digital currencies are unique, while others are just like a clone of Bitcoin.

The prominent types of digital currencies which get favored in the online domain today are as follows:

Litecoin

Ethereum

Bitcoin Cash

Peercoin

Namecoin

As of November 2019, the value of cryptocurrencies worldwide is around 245 billion US dollars, of which 65% share is from Bitcoin itself. Only after Bitcoin's success in this domain did other currencies start to follow the digital currency route.

6. How is Cryptocurrency different from regular currency?

6.1 As already discussed above, virtual currency gets managed by an array of computers that run through open-source codes or algorithms. The government controls the regular money as it gets issued to the Government.

6.2 The value of these digital currencies is always gets based on their supply and demand, basically their usage of them in exchanges and purchases. The value of the regular currency depends primarily on the confidence of the issued Government.

6.3 Cryptocurrency gets secured through cryptography, which uses numerous encryption codes and algorithms through mathematical concepts.

Here, the regular currency gets guaranteed through many third parties such as banks, federal authorities, and Government. A noteworthy point here is that only some people participate in this process of securing the regular currency.

6.4 A more natural difference to quote between both these currencies is that the digital currency does not house any physical coins or bills. In contrast, regular money houses physical coins and bills.

6.5 The last difference between these currencies is that virtual currency can be used only in places where merchants or regulators accept it. Regular coins can get used anywhere in the country which has issued them.

7. The Salient Properties of Cryptocurrencies:

7.1 Real-world identity gets hidden: No transactions or accounts connect with real-world identities. You receive all these digital currencies from an address that usually looks like a chain of 30 characters. Though the transaction flow can get analyzed, the real-world identity of the users gets hidden as it is impossible to trace them with the help of these transactions.

7.2 Deals are fast and happen all around the globe: Transactions by using digital currencies are completed instantly within minutes. You can send these virtual currencies to anyone in the world who may be nearer or farther to you, but it will get completed quickly. The transactions of digital currencies happen around a global network of computers and are entirely indifferent to your physical location.

7.3 The sales that occur by using virtual currencies are irreversible: Once the transaction gets completed in digital currencies, you cannot reverse it back. You send money or initiate a purchase; once the operation is done, it is the end. You can never get back your money or reverse the transaction.

7.4 It requires no one’s authority: Yes, you heard it right. You do not have to seek permission from someone to use these digital currencies. It is an easy-peasy software that can get downloaded and used by anyone. No one can stop you if you are using digital currencies. You send or exchange assets using virtual currencies.

7.5 It is heavily secure and easy to use: Digital currencies use cryptography algorithms or codes and are safe. Every owner gets provided with a private key through which he can send or receive funds, and these funds get locked in a cryptography system with a public key. Cryptography uses crux mathematical concepts, and this magical use of numbers is nearly impossible to break the system.

8. Advantages and Disadvantages of Cryptocurrency:

8.1 Advantages:

8.1.1 No need for third-party regulations: Digital currencies do not need third parties such as banks, federal authorities, or the Government to facilitate a transaction between two parties.

8.1.2 Easier to use: Transferring funds or assets between parties is quite easy and fast through virtual currencies.

8.1.3 Highly secure: All transactions get enforced by a public or private key, making hacking very difficult.

8.1.4 Usage of Wallets: Every user gets presented with a digital currency wallet where he can store his funds. Every wallet has a public key, while the private key will get known only to the owner. He can use this private key while signing the transactions.

8.1.5 Minimal processing or transaction fees: All digital currency transfers are completed within minutes and collect a minimum transfer fee for their operation.

8.2 Disadvantages:

8.2.1 A host for illegal activities: The half-anonymity nature of these digital currencies makes them prone to host many illicit activities such as tax evasion and money laundering. Though this feature gets provided for safeguarding the users' privacy, it still offers an opportunity for hosting illegal activities.

8.2.2 Its legality always gets questioned: Though digital currencies are safe and secure to use, most countries have started to ban the usage of digital currencies due to threats and scams surrounding them.

Some states have also formulated many rules and regulations for this virtual currency. So the legality of many digital currencies always gets questioned due to their high mobility and anonymous nature.

9. Conclusion:

Today, cryptocurrencies have opened a new market for themselves in this online domain. They have got praised for numerous reasons such as transparency, portability, inflation resistance, and divisibility.

Still, they have got criticized for various unwanted things, such as their use for illegal activities, the vulnerabilities present in their structure, and also for their exchange volatility rate.

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