What is Cryptocurrency?
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| Cryptocurrency |
A digital currency that is created and used by private individuals or groups has multiple benefits. The defining benefit of cryptocurrency is that it is not governed by any central authority or financial institution, rendering them immune to government interference or manipulation. This is called having a decentralized system.
A centralized economic system, however, consists of government or corporate control of currency. The government and central banks control the supply of currency by printing units of fiat money and controlling their values as well as transaction costs. In a decentralized economic system, the supply and value of virtual currencies are controlled by the users themselves through highly complex protocols using peer-to-peer networks.
In 2008, Satoshi Nakamoto, a pseudonymous individual or group proposed an electronic payment system that is based on a peer network, which is supported by cryptographic proof instead of relying on trust or a third-party system. In 2009, Satoshi introduces Bitcoin, which became the first decentralized cryptocurrency to prevent problems such as double-spending. Bitcoin transactions are recorded on a public ledger using Blockchain technology, so everyone in the world can verify who gets paid first, each transaction is seen as a case-sensitive address, which anyone can generate in order to receive the coins. So how are these coins created? out of thin air?
Yes, exactly. Bitcoins are generated by a competitive and decentralized process called mining. Miners, which are also Bitcoin users verify each transaction by solving advanced mathematical equations using computing power. By solving each equation, they themselves are awarded some coins in the process. The uses of these coins such as bitcoins include cheap international transfers, micropayments, and even payments and some retail stores around the world. Today, there are many Bitcoin alternative coins called altcoins. Most altcoins hope to either replace or improve upon Bitcoin or even with each other. Each altcoin promises features such as faster transaction speed, more secure privacy, proof of stake, and many more. Of course, with all the benefits on the table, there are disadvantages to using cryptocurrencies as well.
There are higher risks and volatility in the market due to its lack of widespread adoption. Due to its end on immunity. It is a powerful tool for financing crime. Lastly, online cryptocurrency exchanges are still susceptible to technical glitches and cyberattacks, which can deeply affect the value of the coins. Overall, cryptocurrencies still have a long way to go before they can replace today's form of money and be truly accepted in global commerce.
Only time will tell when the rest of the world is ready to accept cryptocurrencies as the everyday means of payment.