A cryptocurrency represents a new form of digital goods. One must understand the cryptocurrency to trade with it successfully. Cryptocurrency is supported by a network shared across great numbers of computers. You can think of it as a virtual and digital currency that’s almost impossible to forge or double-spend because it’s protected by cryptography. Cryptocurrencies as systems allow secure online payments, denominated in ‘tokens’ – represented by record entries within the system.
The word ‘cryptocurrency’ itself originates from these different encryption methods used to protect the network. ‘Crypto’ represents different algorithms of encryption and cryptographic methods covering the mentioned entries as well. These can be in the form of public-private key pairs, elliptical curve encryption, or hashing functions.
Once thought to need legal restrictions and government controls similar to those of weapons, today, the rights for cryptography to be used by civilians got secured based on freedom of speech. What defines cryptocurrencies is that they are usually not issued by a government or any central authority. Their decentralized structure makes it possible for them to be immune to the control, manipulation, or interference by governments and other central authorities. None of these could have access to your finances or info since they are not saved in any central database and, therefore, virtual.
An integral and crucial part of most cryptocurrencies is blockchains. These organizational techniques assure the integrity of data within the decentralized networks of many cryptocurrencies. Those networks are based on blockchain technology, which you can imagine as a financial record shared and carried out by computers’ mentioned network. This sort of online ledger of all the conducted transactions provides a reasonably secure structure of data for itself.
Types of Cryptocurrency: The Big Bang of Bitcoin
In 2009, ‘Satoshi Nakamoto’ (a pseudonym of an individual or group) launched Bitcoin, the first-ever blockchain cryptocurrency. It still holds the most incredible value and popularity. As of Nov. 2019, over 18 million bitcoins were in circulation, having a total market value of around 146 billion US dollars. Meanwhile, thousands of other cryptocurrencies have emerged, having many different specifications and functions. Many are Bitcoin forks or clones, and others are whole new currencies made from scratch. Inspired by Bitcoin’s success, some of them are known as ‘altcoins”. There is Litecoin, Namecoin, Peercoin, as well as Cardano, EOS, and Ethereum. The cumulative value of all the existing cryptocurrencies these days counts about 214 billion US dollars. Bitcoin itself currently represents over 68% of that value.
Implications and Criticism of Cryptocurrency: Advantages and Disadvantages
Many experts claim that blockchain technology’s high functionality will shatter many established industries, especially law and finance. Blockchain technology is also seen as having great potential for online voting and crowdfunding. Some even see the possibility of lowering the costs of transactions using streamlined payment processing.
Some concern exists that cryptocurrencies such as Bitcoin don’t have a root in any material goods. Meanwhile, some research actions showed that the production cost – since it requires more extensive and more massive amounts of energy – relates directly to its market price.
Most observers see possible advantages in cryptocurrencies, such as the potential of saving and holding value against inflation and making it easier to transport and divide than precious metals.
Cryptocurrencies are criticized for several reasons, e.g., their use for illegal activities, the volatility of their exchange rate, thus, vulnerabilities of the infrastructure supporting them. On the other hand, they’ve been highly praised for the divisibility, portability, resistance to inflation, and transparency.
Cryptocurrencies promise a much easier direct transfer of funds between two parties. There is no need for a trusted third party, such as a credit card company or a bank. The market prices here function depending on supply and demand, while the exchange rates can fluctuate widely because a high degree of scarcity of most cryptocurrencies allows for that. The transfer of funds bears minimal processing fees, and users can avoid the steep bank fees charged for wire transfers.