For the past couple of years, there has been so much buzz around cryptocurrencies such as Bitcoin, Ethereum, Ripple, and Litecoin, just to name a few. But, not many people know what exactly cryptocurrency is. That’s why we have created this simple and straightforward explainer article to get you started in the fabulous world of cryptocurrency. Here is Cryptocurrency explained:
Although almost synonymous with Bitcoin, a cryptocurrency is actually a digital form of currency stored on a distributed ledger called Blockchain. Unlike traditional money which is sanctioned by the law of the country which prints and issues it, crypto is decentralized, implying that it’s not certified or tied to any government.
Technically talking, a cryptocurrency is an open source software released for use by anyone anywhere in the world. If you have a rough idea what cryptos like Bitcoin are, the chances are that you have heard about cryptocurrency mining. Oftentimes that means the cryptocurrency open source software provides would-be miners with math problems they can attempt to solve using computer hardware. If successful, the “miner” is rewarded with crypto units such as Bitcoins.
When all’s said and done, cryptocurrencies are digital or virtual monies that are backed by blockchain technology. Once a cryptocurrency has been mined it’s then added permanently to the blockchain, a network of computers across the globe that has to verify, accept, and record any transaction.
There’s a reason cryptocurrency has caused a ripple of waves across the world. They offer never-seen-before features that dwarf conventional currencies. However, there’s another school of thought that seem to think cryptocurrency is a passing wave. Let’s look at both sides of the coin.
What’s to Love about Cryptocurrency?
A cryptocurrency is decentralized
That implies that cryptocurrency cannot be stifled or controlled any individual government. They are stored, recorded, and transacted on an autonomous, distributed ledger.
It provides users with unmatched anonymity
In this day and age of social media, any technology that respects your privacy and offers anonymity is a welcome reprieve. That’s exactly what cryptocurrency provides — exceptionally high-level of anonymity. You can transact cryptocurrency without revealing your identity. Even better, you don’t have to go through a bank.
Thanks to the robustness of blockchain technology, cryptocurrency transactions are stored on the network using state of the art cryptography.
Incredibly low transaction fees
Remember cryptocurrency takes go-betweens, including banks and government agencies, out of the equation. That means you don’t have to pay lots of fees to get a transaction through.
You can mine, trade or receive cryptocurrency anywhere in the world. All you need is a computer with reliable internet connectivity.
Available to everyone
You can use cryptocurrency without the approval of any government or bank
What are the perceived disadvantages of cryptocurrency?
It can encourage criminal activity
Perhaps the most common reason by naysayers, anonymity nature of cryptocurrency can be taken advantage of by criminals.
Since no agency or central government guarantees the value of a cryptocurrency, there is a huge value proposition risk
Susceptive to hacking
Cryptocurrency owners can lose it to hackers
Traditional Currency vs. Cryptocurrency
Cryptocurrencies borrow a leaf from traditional currencies in that they can be transacted — used as payment, sent, received or exchanged on a marketplace. However, they are entirely different on almost any other basis. Here are some distinctive differences you might want to know:
- Traditional currencies are centralized, meaning that banks or respective governments control them. On the other hand, cryptocurrencies are decentralized.
- Cryptocurrencies are created by open source software available to anyone interested in them, while governments create conventional currencies.
- A cryptocurrency comprises pieces of codes, while standard currencies are made out of paper or coin.
- You can expect instant transfers from cryptocurrency, but traditional currencies take long.
- Online transactions of traditional currencies are prone to fraud, but cryptocurrency transactions are almost invulnerable, and the blockchain’s cryptography encryption is simply impregnable.
If you have not been living under a rock, the chance is that you know about Bitcoin, the first crypto. Allegedly created by a fellow called Satoshi Nakamoto in 2009, Bitcoin one of the widely known cryptocurrencies — but, it’s not the only one. In fact, as of this date, there are over a thousand cryptocurrencies available, with Ripple, Litecoin, Monero, Bitcoin, and Ethereum being the most prominent.