Not all money is kept in the wallet or stashed as a data inside a card. Some of them are virtual currencies that are worth tens or hundreds of dollars a coin. This is cryptocurrency.
Just like international equivalents, cryptocurrency is an umbrella term for digital currency. Coded with cryptography – an algorithm that makes it almost impossible to replicate or counterfeit – cryptocurrency is gearing up to be the money of the future. But because it has no physical counterpart, it is important to keep this denomination secure to use and store.
Bitcoin has been the prominent cryptocurrency, with over 18 billion coins in circulation valuing in $146 billion.
How does cryptocurrency work?
To use a particular currency, the money must hold a set value. A central bank is crucial in implementing its local exchange rate in accordance to its current financial standing and performance. But economy changes, and fiat printed currencies are susceptible to various issues such as the inflation. A cryptocurrency, however, is not.
Cryptocurrencies are decentralized – meaning, there is no bank or core network that produces and manipulates the money. It, in turn, flourishes with the use of peer to peer network and a set of computers that keeps a ledger of its transaction data. This is blockchain technology. The ledger provides information for the coin’s lifeline of transactions, including its previous users and purchases. In this way, the money can only be used on a single occasion before it gets transferred to its new owner through payment.
The debut of the digital coins
The first cryptocurrency, the Bitcoin, goes way back in 2009. A still-unknown user named Satoshi Nakamoto launched the Bitcoin, after developing a peer-to-peer cash system in 2008, providing a digital equivalent to cash. At this time, online money transfers, which use token, have been popularly used. Nakamoto’s invention allowed money to be used when both networks agree to a transaction, resulting to a layer in the blockchain. In effect, cryptocurrency is all about consensus and confirmation. Until a present transaction is unconfirmed, the purchase has not taken place.
Each cryptocurrency is created via encryption and is signed by a private key from the user – not the user’s full name – so that everyone remains anonymous. This is one of the shadows of cryptocurrency. But the blockchain gives the currency its unique strand; the data it possesses makes it hard to be forged. It cannot be forged or stolen from; else, one has to redo an entire chain of information. Since its inception, Bitcoin has been the prominent cryptocurrency, with over 18 billion coins in circulation valuing in $146 billion. But there are other cryptocurrencies competing in the market.
Some of them are:
Litecoin is a cryptocurrency launched 2 years after Bitcoin, created by MIT graduate Charlie Lee. It creates faster blockchains and is encrypted with scrypt.
Etherum is a more recent cryptocurrency launched in 2015, made from a programming language Turing complete that runs on blockchains. It is an open-source currency that was primarily used for Ether’s own system.
It’s an open-source technology primarily developed for domain names.
EOS is a decentralized platform that works similarly to web-based apps.
The advantages and disadvantages of cryptocurrencies
The idea of cryptocurrencies surfaced in 1998, but it wasn’t until after a decade that it was realized and became of use. True enough, there is power in decentralized money. Not only does it give users freedom on how to spend their money while remaining anonymous, transactions are fast, easy and secure. It is free from a country’s financial string, keeping its value strong. Plus, the denomination, unlike bank transfers or monetary transactions, have lower processing fees – sometimes none. Peer to peer transactions give an honest indication of where the coins were spent, and everyone has access to the blockchain. There are no boundaries; one can purchase whatever they want, whenever, and remain to be under the shadows.
However, just like every other good thing, cryptocurrencies also possess disadvantages. One, once confirmed, a transaction is not reversible and the money will not return back to the user. Also, the fact that it is decentralized makes many businesses wary of its use; not all website accepts transactions through this currency.
As of now, only two countries in the world are using cryptocurrency as legitimate money: Switzerland and Singapore. But as time progresses, there’s no surprise if it takes over the economy. After all, cryptocurrency is set to be the money of the future.