“Currency” just after reading this word, what flashes in your mind? A dollar, Euro, Rupee, Pound?
If yes! Think about what’s common in all these?
Purchasing power is the answer. All the legal tender of countries has some purchasing power and used as a medium of exchange. That’s what currencies are for. In our routine life from purchasing milk, egg, or bread to buying some property or investing in the share market, everything is running by the exchange of currencies. With digitalization and the technical evolution of the world, the form of currencies is also evolving. From physical currencies to online transactions and wallet payments, the world is heading towards cashless economies.
One of the breakthrough financial revolutions is the invention of “Cryptocurrency.”
What is “Cryptocurrency?”
Similar to other currencies, cryptocurrencies are also used as the medium of exchange but unlike others, these are virtual or digital currencies. To protect the transactions against any kind of fraud or double-spending, cryptography is used to secure the complete process. Apart from transactions, the creation of cryptocurrencies is also regulated. No one can create cryptocurrencies without fulfilling specific conditions.
How do cryptocurrencies work?
Cryptocurrencies can be better explained as a peer-to-peer electronic cash system. Similar to peer-to-peer file-sharing networks, it doesn’t require any central server. Cryptocurrencies are entirely decentralized as opposed to other currencies.
In general, if we talk about online payment networks, one of the big challenges is to stop double-spending/ fraud of money; thus, we require a trustworthy third party( Central server) to maintain the transaction ledger. To prevent the double-spending of money, we have to provide all the information regarding the sender or receiver to the third party.
Now let us talk about cryptocurrencies, their transaction requires neither a central server nor a controlling authority. With the help of blockchain technology, a decentralized public ledger is maintained in which miners approve the transaction as valid, and details get broadcasted in the complete network. The public transaction ledger will get updated with all the valid transaction details. The public keys assigned for wallet and private keys assigned to users help in the dissemination of information to all the nodes.
What are the advantages of using cryptocurrencies?
As we have discussed already, cryptocurrencies are completely decentralized. There is no central controlling authority that regulates it, unlike the normal currency regulation by Central banks of respective countries. Decentralization and blockchain technology together results in many advantages, few of them are as follows:
- Inflation resistant: Decentralization is a valuable feature of cryptocurrency. Having no central controlling authority makes it inflation resistant. There is no intervention of govt or any other authority like central banks etc. in the network of cryptocurrencies. Thus, unlike normal currencies, govt can’t control their flow or regulate their trade otherwise.
- Transparency: The transaction process of cryptocurrencies is completely transparent, thanks to blockchain technology. Every valid transaction got updated in the public ledger maintained with the help of BCT. Thus, everyone in the crypto-network would get information about each and every transaction. Apart from bringing transparency, it also eliminates the chances of double-spending.
- Fewer formalities and user friendly: When it comes to financial affairs, be it as simple as opening a bank account, lots of document verification is required, but dealing with cryptocurrencies is not the same. All you need is a device with an internet connection to create your wallet. Once you are done with creating the wallet, you have entered the world of crypto-currencies.
- Feasibility in international transactions: If you are someone who frequently sends or receives overseas payments, you must be aware of the time taking process and formalities. With cryptocurrencies, users can transfer or receive international payments without any hassle. They don’t have to wait for days to get payments. Once the transaction gets validated, it doesn’t take long to get credit into the respective wallet.
- Freedom from heavy transaction fees: One of the significant advantages of using cryptocurrencies is to get freedom from the heavy transaction fee. Unlike normal currency transactions, it levies a very small fee on every transaction. This comparative advantage gives an edge to cryptocurrencies when compared to conventional currencies.
What are some disadvantages of using cryptocurrencies?
Just like every coin has two faces, every invention has both pros and cons. Let’s have a look at the disadvantages of using cryptocurrencies.
- Irreversible nature of the transactions:
All the crypto-transactions are of irreversible nature i,e once you have done the payment, you can’t undo the process. Even if you have done any payment by mistake, there is no process to initiate the refund. Thus, users should be more careful while making payments.
- Use in Illegal matters:
One of the important features of cryptocurrencies is the anonymity of users. Due to the anonymous nature of transactions, there is a high probability that cryptocurrencies could be used by people involved in illegal activities such as money laundering, drug rackets, etc.
- Storage of cryptocurrencies:
When we talk about storing currencies, first thought that strikes your mind must be keeping your money safe in a bank or in a locker. Where will you keep virtual currencies which you can’t put in either of them? If you save cryptocurrencies in your device like a phone or computer, you can’t afford to forget your passwords. In case you forget your passwords, there is no way of retrieving cryptocurrencies. The only thing which you can do now is to forget about the money you have lost.
- Volatile nature of Cryptocurrencies:
Cryptocurrencies are highly volatile in nature. Owing to their volatile nature, cryptocurrencies have seen tremendous ups and downs when it comes to their market price. There are multiple reasons for the volatile nature of cryptocurrencies, and one of them is comparatively small market size than other currencies. Lack of stability makes it a more risky investment option for investors.
- Comparatively less worldwide acceptance: Acceptance is another issue with cryptocurrencies. When compared to other currencies, there is less acceptance for cryptocurrencies. Not every brand or company is open to deal in cryptocurrencies. If we look at the bigger picture acceptance is gradually increasing, there are many online stores and brands which are dealing in crypto-currencies. Bitify, OpenBazaar, Gift Off, Overstock, etc. are a few examples of increasing acceptance of cryptocurrencies, these stores/ online websites accept cryptocurrencies as a payment mode.
So now we have discussed broadly the pros and cons. Let’s move to another question…
What are the most common cryptocurrencies available in the market?
There are many cryptocurrencies circulating in the market. Here is the list of most common cryptocurrencies:
Now, let us move towards the legality of cryptocurrencies…
Which are the countries where cryptocurrencies are legal affairs?
Cryptocurrencies are legal in most European countries (Norway, Sweden, Finland, France, Germany, Spain, Italy, Greece, etc.), Southeast Asian countries (Cambodia, Indonesia, Malaysia, Philippines, Singapore, etc.), Asian countries (Kyrgyzstan, Uzbekistan, UAE, Israel, India, Cyprus, etc.), American countries(US, Mexico, Nicaragua, Costa Rica, Argentina, Brazil, etc.). They are also legalized in Australia and New Zealand.
After broadly discussing the basics of cryptocurrencies let’s talk about the brain behind the invention of cryptocurrencies.
Who invented cryptocurrencies?
Bitcoin was the first-ever discovered cryptocurrency. The brain behind this powerful revolutionary invention is still unknown. No one knows that it was discovered by a group of programmers or by only one programmer. What the world knows about the inventor is the name “Satoshi Nakamoto,” who was he/she, or they, no one has a clue.