Everything You Need To Know About Digital Currency (Cryptocurrency)
Table Of Contents
- 1 Everything You Need To Know About Digital Currency (Cryptocurrency)
- 1.1 What is Cryptocurrency?
- 1.2 A Brief History of Cryptocurrency:
- 1.3 Uses of Cryptocurrency:
- 1.4 Legal Value of Cryptocurrencies:
- 1.5 Famous Cryptocurrencies:
- 1.6 Working of Cryptocurrencies:
- 1.7 Cryptocurrency Mining:
- 1.8 Buying Cryptocurrencies:
- 1.9 Storing Cryptocurrencies:
- 1.10 Benefits of Cryptocurrencies:
- 1.11 Future of Cryptocurrencies:
The latest technological products and services have revolutionized the entire world. One such latest invention is the cryptocurrency that has emerged as a global phenomenon over the past few years. This phenomenon is at the same time simple and complex. In spite of a lot of literature available about it, most of the people are unable to understand the true nature of this currency. The soaring values of digital tokens in 2017 have made cryptocurrency one of the widely discussed topics across the world. Nowadays, everyone seems interested in digital currencies to make profit. This article will tell you all about digital currencies and the benefits of investing in these.
What is Cryptocurrency?
Cryptocurrency is a digital currency that works as a secure medium of exchange. Cryptography is the technique that is used to secure each and every transaction and for creation of new units. Blockchain is the latest technology that is being used in cryptocurrencies nowadays. Blockchain is a kind of distributed ledger that is used for storing the digital transactions. Each transaction is stored in a separate block which is independent and linked with the previous one.
One of the greatest features of this digital medium of exchange is that all the transactions take place on peer to peer basis and there is no involvement of any third party like bank or any other financial institution. Therefore, the transactions are cost effective and completed within seconds.
A Brief History of Cryptocurrency:
Since the invention of computers, different people have been trying to invent some sort of digital medium of exchange. The efforts were on full swing during the tech boom of 90’s. During this period, various systems like Flooz, Beenz, DigiCash came up but failed due to the intervention of the third party. These intervening companies used to authenticate the transactions to stop various fraudulent activities. Moreover, the conflicts between the employees and their bosses also became one of the reasons of the failure of this system.
With the improvement in internet technology at the dawn of new century, the efforts took a new turn. In 2009, a programmer Satoshi Nakamoto introduced Bitcoin- the first ever digital currency. Satoshi described it as digital cash based on peer to peer network technology. He invented this digital currency by using peer-to-peer network that was being used across the world for file sharing. He launched it as completely decentralized currency without any need for involvement of third party.
Instead of third party, blockchain technology serves the purpose of recording the transactions and keeping balances. Here, the entire job is done by every participant and they can see the transactions taking place. It is also called a decentralized or public ledger where all the transactions and balances are visible to everyone. All the transactions are signed by the sender and receiver through their own unique private keys. These transactions can neither be reversed nor forged after completion.
This shows that the cryptocurrency system works through the consensus of all the participants. If anyone of the participants disagrees, the whole system will break. There are also many rules, regulations, and programs to save the system from any kind of breakage.
Uses of Cryptocurrency:
With the continuous improvement in blockchain technology, the uses of cryptocurrencies are also increasing. Different companies are building various types of platforms to facilitate the individuals, businesses, and organizations. A detailed study of the cryptocurrencies shows that it can be used for following purposes.
With the soaring values of cryptocurrencies, the merchants and traders accepting these are increasing. Many of the offline and online merchants across the world accept the payment in the form of cryptocurrencies. This is because of lower transactions fees and speed of the cross border transactions. A few years ago, it was a lot difficult to find any merchant accepting cryptocurrencies. But, with the soaring values of top cryptocurrencies the merchants ready to accept these are also increasing. Nowadays, you can buy anything from the world and pay in the form of cryptocurrencies.
This wide acceptance of cryptocurrencies is due to their reliability, security, and speed. Also, the trading in these is cost effective because of minimal transaction fees.
2-For Investment Purpose
If you want to invest in any business or company, cryptocurrencies are one of the best options. This is because of the soaring values of cryptocurrencies. All the cryptocurrencies had achieved landmarks in 2017. The values of these currencies had touched all time highest marks. Bitcoin had touched $20,000 mark with Ethereum and Ripple (XRP) at its heels. Ethereum had shown an increase of 10000% in its market cap while Ripple XRP had shown 30000% increase.
These increasing values of cryptocurrencies have made them ideal for investors. However, in spite of this entire spike in the values, many financial experts are warning the investors. They are saying that the cryptocurrencies are not regularized and any kind of investment in these may render the investors great financial loss. In spite of these warnings, many people are planning to invest in these because it had made many investors millionaires.
However, if you want to invest in the digital currencies, always remain in close touch with fluctuating values of these coins. Bitcoin, Ethereum, Ripple and Litecoin may prove beneficial for you because of their ever increasing values.
3-Medium of Payment for Businesses
The third and the most important use of cryptocurrencies is their use as a medium of payment. If you want to start a new business, you should enlist many of the cryptocurrencies as mode of payment. This is because it will bring you more customers as users of cryptocurrencies are increasing all across the world. For example, CoinPayments accepts more than 100 kinds of cryptocurrencies as a medium of payment. Many of the world countries are planning to regularize the cryptocurrencies and this will increase their values a lot in future.
Legal Value of Cryptocurrencies:
The increasing values of cryptocurrencies have created complexities in the financial systems of many countries. Thus, the tax authorities and law enforcement agencies are busy in understanding the true nature and working of these currencies. This is because they want to regularize these digital currencies and bring the transactions under tax net.
One of the greatest reasons of their being illegal is that these virtual currencies do not exist physically. All the digital transactions are taking place securely without the role of any central body. This enables the investors to evade taxes. Moreover, the decentralization of the digital currencies may help the people to trade these for illegal goods and services. The financial experts are also of the view that this may also cause money laundering on a large scale.
Therefore, many countries across the world have declared these as illegal and any kind of trading in these currencies is banned. Bangladesh, Vietnam, and China are among the countries that have banned the digital currencies. China has closed many of the largest crypto exchanges in the country. South Korea have also announced to regulate the cryptocurrencies and this has decreased the values of cryptocurrencies a lot. South Korean government has also banned many of the cryptocurrencies and exchanges in the country.
On the other hand, many large banks, money transfer companies, financial institutions are planning to adopt these. American Express and MoneyGram are among the top companies adopting cryptocurrencies as a payment platform. All this is happening due to their ease in cross border transactions. Cross border transactions are now completed in just 10 seconds in Ripple’s blockchain platform.
The increasing values of cryptocurrencies are attracting more and more investors and companies to invest in these. Also, more and more companies are planning to issue coins. At present there are about 1384 cryptocurrencies trading across the world and the number is increasing continuously. However, the most important currencies being traded across the globe are Bitcoin, Ethereum, Ripple, Bitcoin Cash, NEM, Litecoin, Monero, NEO, Altcoin, Dash, IOTA, Doggicoin, Omni, Peercoin, and Swiftcoin.
The values and market caps of all these currencies are different and these values fluctuate every second.
Working of Cryptocurrencies:
The working of cryptocurrencies is a lot geeky that many people do not understand the real nature and working of it. In order to understand the working of cryptocurrencies, you must understand the basics of blockchain, cryptography, mining, and transactions.
As transactions take place in digital currency with the help of a peer-to-peer network, the transactions are sent to peers from cryptocurrency wallets. This is done through matching codes with private keys issued to the users. All the transactions are stored on a decentralized public ledger. This public ledger is called blockchain and is accessible to everyone who uses a full node wallet. Here, it is important to mention that the transactions are visible to all in the network but the persons doing these transactions are unknown.
After the completion of the transaction, the cryptocurrency belongs to the person who is the owner of the target wallet. These transactions take place between the wallets of the senders and receivers through matching various public and private keys. These transactions are queued and recorded in the ledger at their respective time. Many transactions are taking place in this trading at a time. But, the ledger stores all these in a sequence. These transactions are irreversible after completion.
Each block of the blockchain keeps the information of a separate transaction. Every new block is linked with the previous block and resists any change. Due to the reason that the sender and receiver are anonymous, there always remain the doubt of their use in illegal activities and money laundering.
Everyone who wants to make a future in cryptocurrencies must understand the concept of mining cryptocurrencies. Cryptocurrency mining means the verification of the transactions that have taken place. Mining is necessary because all the transactions are stored on the decentralized public ledger after mining. Mining is also the process of creation of new coins of any currency. This shows that everyone who has a stable internet connection and suitable hardware can take part in mining process. All the currencies except Ripple XRP can be mined. Ripple XRP is the only cryptocurrency that is released by the company.
The process of mining consists of many puzzles. The person who first solves the puzzles becomes a miner and he is able to compile the transaction in a separate block. Similarly, the person who first solves the next mathematical complex puzzle occupies the next block. All the persons solving puzzles claim their rewards in the form of new coins.
With the passage of time, buying options in cryptocurrencies are also increasing. There are more buying options for top cryptocurrencies like Bitcoin, Ethereum, and Ripple. Whereas, the buying options for smaller cryptocurrencies are a lot limited. Various crypto exchanges across the world offer various cryptocurrencies and you can either buy or exchange the currency of your choice.
Bitcoin is the cryptocurrency that can also be bought through ATM’s. There are about 1800 Bitcoin ATM’s in more than 58 countries of the world. Bitcoin is also the cryptocurrency that can be bought through Credit Cards. You can also buy it through exchanging any other currency either cryptocurrency or fiat currency. You can also buy Bitcoin through face to face trading.
Storing cryptocurrencies is also a lot different than storing physical currencies. This is because there is no physical existence of these currencies. A different kind of approach is required to store the digital currencies. Technically, the miners do not store the units of cryptocurrency. Instead, they have to store the keys that are used for authentication of various transactions.
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There are various kinds of wallets to store cryptocurrencies. These wallets may be hardware wallets as well as software wallets. For utmost security, the experts prefer to store the keys in a hardware wallet. The online wallets are more prone to risks because of their being connected to the internet.
There are also some cold stores for storing cryptocurrencies. These are offline wallets that are usually stored on the hard drive of your computer. The online wallets are sometimes linked with crypto exchanges and sometimes to independent networks.
Benefits of Cryptocurrencies:
Due to improvement in blockchain technology, the benefits of cryptocurrencies are also increasing. Following are some of the top benefits of cryptocurrencies.
1-Lower Transaction Fees
The very first advantage of using cryptocurrency is that there are lower transaction fees. All the exchanges across the globe take minimal fee for transactions. Instead, the miner gets enough compensation through the system itself.
2-Immediate Settlement of Payments
Cryptocurrencies are also advantageous because of the transactions speed. The cross border transactions are completed within seconds. Earlier, it took more than 15 days for an international transaction to complete. The result is that there are no misunderstandings between the businesses and customers.
As you know that the transactions taking place in cryptocurrencies cannot be forged and reversed. This is because every transaction is saved cryptographically. Thus, there are fewer chances of frauds.
Another advantage of cryptocurrencies is that everyone in the network can easily access the transactions and wallets. In this age of computer and smartphones, almost all the people own wallets that are online and secured through private keys.
Decentralization is another plus point of cryptocurrencies. All the transactions take place on a peer to peer base network and there is no central server or third party to control the transactions. This has made cryptocrrencies a large medium of payment because these are cost effective.
Future of Cryptocurrencies:
The future of cryptocurrencies seems sharp because of their increasing values and ease of payments. More and more banks, financial institutions, credit/debit card companies, and money transfer firms are planning to join their blockchain network. All this is due to their innumerable benefits for the individuals as well as businesses. Most of the financial experts are staunch supporters of these currencies. They prefer to trade in these currencies because there is no need of person being at some particular place. Instead, you can trade these on the go and at anywhere in the world where you are.
The increasing announcement of regulators from various countries is affecting the cryptocurrencies at present. But, these regulations will later prove beneficial for the future of cryptocurrencies because the values of the cryptocurrencies will increase after their being legally acceptable.
Still there are many critics who want the governments to ban the trading in cryptocurrencies because of the tax evasion and money laundering threats. In spite of all the criticism, cryptocurrencies will reach the peak in two years because most of the businesses will adopt these as payment platforms across the world. It will also overtake the large companies like MoneyGram and Western Union as an easy remittance tool.