Cryptocurrencies have become insanely popular over the past few years. With the increasing popularity, there is a constant increase in demand for blockchain developers which is the underlying technology of cryptocurrencies such as bitcoin. In this article, we are going to understand what crypto actually is and what is its origin along with various significant aspects. So let’s get started.
Before moving forward, we would like our audience to know that this article is only for knowledge purposes.
WHAT IS CRYPTOCURRENCY?
Cryptocurrencies are a virtual or digital currency that is meant to be a medium of exchange. It is quite similar to real world currency, except it does not have any kind of physical presence or embodiment and it uses cryptography to operate.
Because they operate in a decentralised manner and independently, without a central authority or bank, new units can be added only after certain conditions are met. For instance, with bitcoin, only after a block has been added to the chain will the miner be rewarded with bitcoins and this is the only path from which new bitcoins can be generated. The limit for bitcoins is 21 million and after this, no more bitcoins can be mined or produced.
MERITS OF CRYPTO
With the introduction of crypto, the transaction cost is nothing at all or a very low nominal amount, unlike for instance, the fee for transferring money from a digital wallet to a bank account. You can make transactions at any time of the day or night, and there are no limits on withdrawals or purchases. And anyone is free to use crypto, unlike setting up a bank account which requires a lot of paperwork and documentation.
Internally, crypto transactions are faster than wire transfers too. Wire transfer may take about half a day for the money to move by crypto, transactions take only a matter of seconds and hardly minutes!
WHAT IS CRYPTOGRAPHY?
Cryptography is a method of using decryption and encryption to secure communication in the presence of 3rd parties with ill intent, i.e. 3rd parties who want to steal user data. Cryptography uses computer algorithms such as SHA-256 and other languages, which is the hashing algorithm that bitcoin uses; a public key, which is like a virtual identity of the user shared with everyone and a private key which is a virtual signature of the user that is always kept hidden.
CRYPTO VS TRADITIONAL CURRENCIES
Imagine a situation in which you want to repay a friend who bought you dinner, by sending money online to their account. There are various ways in which this can go wrong. Which are:
- The bank could have a technical issue, such as its systems are down or the machines are not working properly.
- The transfer limits could have been exceeded.
Now if this transaction is to take place through a cryptocurrency, a notification will appear asking whether the person is sure to transfer crypto. If yes, procession will begin, the system will authenticates the user’s identity, checks whether the user has the needful balance to make that transaction and so on. After this is done, the payment is transferred and the money will land in the account of the receiver. All of this happens in a matter of minutes.
So in crux, we can say that crypto has the potential to remove all the problems of modern banking.
DOWNSIDE OF CRYPTOCURRENCY
- The almost hidden nature of crypto transactions make it easy to be the focus of illegal acts such as money laundering, terror-financing or tax evasion.
- Payments here are not at all irreversible.
- Cryptocurrencies are not readily accepted everywhere and have limited value elsewhere in the world.
- There is a concern that cryptos like bitcoin are not rooted in any material or substantial goods. Some research has also identified that the cost of producing a bitcoin which requires a huge amount of energy is directly related to its market price.
There is a clear division when it comes to cryptos. On one side are people who support it and on the other there are people like Warren buffet, Robert Shiller and Paul Krugman who strongly oppose it. Shiller and Krugman both are Nobel Prize winners in economics and call it a ponzi scheme and a means for criminal activities.
In the future, there is going to be a conflict between anonymity and regulation. Since several cryptos have been linked with phishy activities including terror attacks, the government would want to regulate how it works which defeats the main aim of anonymity of the cryptocurrencies.
Anyways, as of now we can not count crypto as a legal tender or a trustable means of transferring money or buying something. That is the reason most experts and advisors won’t advise investors to invest in it. But it definitely shows us what technology can do!