What is Crypto Currency?
Cryptocurrencies are popular across the internet. We have seen many news publishers, businessmen and influencers talking about cryptocurrency. But what exactly is cryptocurrency and how did it become so popular?
Here I am going to explain what is this new type of currency in simple words. I want to address that I do not know everything about cryptocurrency so it is difficult for me to discuss everything here. So, let's start from the basics.
What is Cryptocurrency?
Cryptocurrency is a digital money. It is not physical money. It is all online. That's why you won't see a person giving crypto coins to the cashier. You can transfer cryptocurrency to someone else online without a middle factor like a bank. Bitcoin is the most popular cryptocurrency.
Cryptocurrencies work on the blockchain technology. Blockchain is a secure decentralized technology spread across many computers all over the world. These computers manage transaction records.
As cryptocurrencies are decentralized, there is no centralising organisation or any Government body which manages the market value of a particular cryptocurrency. This is one of the many reasons why the cryptocurrencies are super sensitive. This means that their value increases or decreases unprecedentedly.
How does cryptocurrency work?
Cryptocurrency is mined (in other words earned) using powerful supercomputer. This supercomputer is given a complicated mathematical puzzle to solve. If the computer solves this puzzle, then it is rewarded with some cryptocurrency. This puzzle is nothing but the records of previous crypto-transactions which is placed to the next block in the blockchain.
Is this the only way one can earn cryptocurrency? No. Cryptocurrency can be bought using real money. Think it as the Casino Coins. It is exchanged with general currency. This makes it an ideal asset for investors because its market value changes all the time like a share value or gold value.
What is a Blockchain and how does it work?
Blockchain is a chain of blocks which contains information. This helps for the sequential arrangement of data which is very difficult to change it. Each block contains some data along with hash of the block and hash of previous block. The data stored depends on the type of the blockchain. A bitcoin blockchain contains details of the transactions such as the sender, receiver and amount.
A block includes hash. The hash is alphanumerical data and it is unique like fingerprint. Any changes made in the block causes the hash to change. That's why hash is very important to verify the data in the block. The interesting part of the blockchain starts here. If someone tampers with the data in a block, the hash will change but the next block does not contain the new hash of previous block. This makes the following blocks invalid. To check the changes made in the block is authentic or not, all the system having access to it need to verify. This makes the blockchain technology so secure. Learn more about this in the YouTube video here.
Is cryptocurrency legal?
Cryptocurrency is not illegal. Anyone can sell, buy and trade cryptocurrency. In the US, cryptocurrencies are defined as a property rather than the currency. In India, the mining and trading of cryptocurrency is not legal. The Government does not consider cryptocurrency as legal tender or coin. The right intention is to prevent the wrong usage of cryptocurrency and blockchain. The Government will make use of blockchain technology in few years.
Advantages
As the cryptocurrency is virtual money, there are some key advantages over traditional currency.
- Transaction: In the traditional businesses, there is brokerage, commission, agents, paperwork which makes the process complicated. Cryptocurrencies are traded without the need of ‘middle man'. This is known as one-to-one affair.
- More confidentiality: The transaction details are not publicly available unless you do so. This protects your financial history.
- Less transaction fees: As there is no bank system, you do not require to pay transaction fees. You are maybe required to pay to crypto wallets.
- Greater access: These services are accessible to anyone having internet. It is estimated that people have more access to internet and mobile phones than banking services like credit cards.
- Strong security: We have seen that blockchain technology is highly encrypted. So, it is impossible to hack this system.
Disadvantages
This system has some major disadvantages which prevents it to become wide-spread.
- Illegal transaction: This problem is concerning many countries. As the transaction details are private, the investigating organisations cannot access these details. So many illegal items like drugs are bought on the dark web. Bitcoin is the biggest culprit here.
- Financial losses: If a user loses its wallet key and password, there's no getting it back. The wallet will be locked along with the number of coins in it.
- Adverse effects on environment: Mining cryptocurrency requires advanced computing power which cannot be done using ordinary computers. This demands a lot of energy.
- Susceptible to hacks: Although cryptocurrencies are very secure, the wallet data is not that secure. Hackers can access this data and a lot of money can be stolen.
- No refund: If someone mistakenly sends money to wrong address, there is no way to get it back. Many people can cheat others and create transaction whose products or services the user never receives.
Conclusion
Cryptocurrencies have a long way to go. They are just at the initial stage. Many individuals and organisation are creating their own cryptocurrency. Even you can create your own cryptocurrency. This digital currency has become a good investment for investors. Cryptocurrencies might be banned in several countries but blockchain technology is more acceptable around the world. Indian Government is considering to release their own cryptocurrency using this technology.
As the result, if you have little knowledge about cryptocurrency, you can get started with it. Hope it helped you to understand. Please share this blog with your friends. Thank you!