In a world rapidly becoming digitized and online, it is no wonder that money and currency are moving toward the digital sphere as well. This has been made possible by cryptocurrency; a digital currency that operates independently of banks or governments. Cryptocurrency is a digital medium of exchange designed to be an alternative to standard currencies such as the dollar or euro. These virtual currencies are generally known as ‘currencies’ because they can be used to buy things like real money can. However, unlike standard currency, which is issued by governments or central banks, cryptocurrency is produced by private individuals called miners who use software to solve math problems for which there is only one correct answer. However, before we go into details about Cryptocurrency let’s have a look at some basic definitions.
What is Cryptocurrency?
In the simplest terms, cryptocurrency is digital money. The word “crypto” is a prefix that means “hidden”. The money exists digitally and is meant to be hidden from authorities and traditional banks. They exist outside the realm of government control and can be traded among people who don’t trust each other or don’t want to deal with banks. There are lots of different types of cryptocurrencies, though they are all based on three principles: – A decentralized system: There is no central authority or banking system controlling or regulating the currency. – A public ledger: The transactions are recorded in a public ledger that anyone can see but no one can change. – A virtual “wallet”: You have a virtual wallet where you store the currency.
How does the Cryptocurrency Process Work?
A cryptocurrency transaction can be thought of as a bank account transfer. The only difference being, is that the money is not stored in any physical location. All the account holder needs is a public and private key for identification. Such a transaction works on a peer to peer network with a network-wide consensus. The transaction is verified by network nodes and recorded in a public distributed ledger (a blockchain). The blockchain is like a very large digital account book that lists all the transactions that have ever been executed.
Who Created Cryptocurrency?
The whole concept of this virtual currency was first proposed by an unknown person or group of people called Satoshi Nakamoto. The identity of this person is still a mystery as there are many debates regarding it. However, in a few interviews, he has stated that cryptocurrency is a decentralized form of digital currency; he wanted to create. The motive behind this creation was, to remove the need for banks in all monetary transactions and give the power back to the people. To do so, he created a mathematical solution to the problem of trust, which is the core component of all monetary transactions.
Pros of Using Cryptocurrency
– Low Transaction Fees: Cryptocurrency does not require a third party for its functioning. This means that there will be no third party fees for using the service. – No Paperwork: Paperwork is a necessary evil for most people who take cash from a bank. This is because banks often require them to attach proof of identity and proof of address along with a signature. However, when it comes to cryptocurrency, you do not need to fill out any paper work. – Distributed and Decentralized: Cryptocurrencies are not stored in any physical location. This means that they cannot be hacked nor stolen. – No Government Control: Crypto is not controlled by any government or central authority. This means that you do not have to worry about the government collapsing and having your assets seized. – Security: With crypto, your money is stored in an online wallet. This wallet is secured by a very strong password and two-factor authentication.
Cons of Using Cryptocurrency
– Unpredictable Nature: Cryptocurrencies are decentralized and unregulated. This means that there are no regulations governing them and their values can fluctuate substantially. – Blockchain Space Is Getting Crowded: The demand for cryptocurrencies is growing day by day. This is increasing the competition among cryptocurrencies. This has created a situation where new cryptocurrencies are entering the blockchain space every day. This is increasing the competition and making the process of selecting a profitable investment difficult. – Risk of Being Hacked: As the digital wallet is stored online, it is prone to hacking. You have to take proper precautionary measures to avoid being hacked. – Difficulty in Scalability: Cryptocurrencies are a peer-to-peer system. This means that there is no central authority that validates the transactions. Instead, all the nodes in the network validate the transaction. This makes the system scalable but also increases the risk of double spending.
The world of cryptocurrency can be very confusing and difficult for some to comprehend. This article has been written to help those with little to no knowledge about the subject. The article has explained what cryptocurrency is and how the process works. It has also explained who created it as well as the pros and cons of using it. The article also provides information about other aspects of cryptocurrency such as transaction fees, security, etc.