We are moving forward to a world which will soon be digitized entirely. Cryptocurrencies are knocking the door as the future of currencies. No wonder one day we wake up to find it as true.
A technophile or a group of technophiles in the year 2009 by the pseudonym Satoshi Nakamoto developed the idea of digitalized money commonly known as cryptocurrency.
Let us dig deeper into the idea of cryptocurrency and explore whether it has the potential to be considered as the future of currencies or not.!!
What is Cryptocurrency?
- Cryptocurrency is formed by two words crypto, which means “data encryption” and currency which means “a medium of exchange”. Thus cryptocurrency is an encrypted form of the medium used for the exchange of goods and services. It simply defined is digital money without any physical form which exists only in electronic form.
- We can use cryptocurrencies to buy and sell goods and services, transfer money within accounts, just like we do with the paper-form of cash.
- Cryptocurrencies work similarly as tokens used in various organizations and casinos, i.e., exchange real money with tokens to get services.
- Just like every individual has their unique combinations of email addresses, cryptocurrencies also have a unique address for every user which determines the destination of their payment.
- It is different permutations and combinations of varying numbers stored in a user account.
- Cryptocurrencies usually work on Blockchain technology. The most integral feature of cryptocurrencies is that they are not controlled and regulated by any third party, i.e., they are decentralized.
- A few examples of cryptocurrencies are Bitcoin, Bitcoin Cash, Stellar, Neo, Cardano, IOTA, Ripple, Ethereum, Pi Network and Litecoin.
- However, the most common of them is Bitcoin. It is estimated that more than 17.6 million Bitcoin tokens are in circulation.
- Bitcoin Cash differs from the original bitcoin due to its block size.
- Litecoin is similar to Bitcoin and was created in 2011 by a former Google employee.
- Ethereum works more as an app store. Its main motive is to return the control of apps to its original creators.
- Ripple is a type of cryptocurrency which does not work on Blockchain technology. Its is for larger companies and organizations for transfer of a large sum of money.
- Stellar focus on money transfers and aims to provide much faster speed and efficiency.
- Neo works similar to Ethereum and is a strong competitor of Ethereum.
- Cardano was founded by Charles Hoskinson, who is also the co-founder of Ethereum.
- IOTA, which was launched in 2016 does not work on Blockchain technology.
- Pi Network is the latest one claiming to be the future of digital currency.
What is Blockchain Technology?
- The essential feature of Blockchain technology is that no central authority controls it.
- Hence the data of transactions made is not just stored in a single server but a group of computers, making it more secure and safe. A Blockchain does not have any transaction cost.
- So, how does blockchain works? Suppose when a transaction initiates, a block is created. This block is verified by zillions of computers spread across the network and is added to the chain creating a unique record.
- The network confirms the transaction made after a specific period. When the transaction is still in the process of confirmation, it has high chances of getting changed, but once the transaction is confirmed, it is safe and secure.
- The confirmation of the transaction is done by “miners”, they receive the transactions, confirm it and spread it to among the network. They receive a token of cryptocurrencies in return of this vital work.
Advantages of Cryptocurrencies
- Everything comes with its share of good and evil. Cryptocurrencies have many advantages which make it unique and full of potential to rule the digital world.
- The most essential and integral part of cryptocurrencies is that they are secure and safe, unlike other government agencies.
- No single person can change or forge the data on the blockchain network, making it completely secure.
- Cryptocurrencies cannot be blocked as any central authority does not control it instead is added to the blockchain and is irreversible.
- It assures complete anonymity as we do not have to share any personal information to trade cryptocurrencies.
- Cryptocurrency transactions provide complete transparency unlike regular currencies which allows only government organizations to access all the information. Cryptocurrency transactions are available to everybody, you cannot find the personal data of the account but can track transactions and know the amount of money available in the account.
- Cryptocurrency transactions do not need any intermediates; hence it does not charge any extra fees and is high in speed.
Disadvantages of Cryptocurrencies
- Cryptocurrencies give rise to illegal activities such as money laundering and tax evasion. They are prone to the threat of hacking mafias.
- Since cryptocurrencies are irreversible, once you send the money, you cannot cancel the transaction by any means, hence if you send the money to some scammer or hacker, you cannot get your money back.
- A private key secures cryptocurrencies. Once you lose or forget the private key, it becomes challenging to break the private key.
- There is no cash flow in cryptocurrencies, for you to earn a profit; someone has to pay more than what you have paid.
- There is no stability in cryptocurrencies as its value rose in December 2017 but crashed a year later.
Cryptocurrencies seem to be a complex technology but with high potential. To infer and decide whether cryptocurrencies have a future in the coming times or not, presently it seems a bit difficult to say confidently about the future of cryptocurrencies.
Its complexity will surely hinder its way, but once we get the hang of it, it has the potential to replace the paper currencies in the near future.