Introduction to Crypto Currencies
Cryptocurrency (or “crypto”) is a digital currency that can be used to buy goods and services or traded
for a profit. Bitcoin is the most widely used cryptocurrency.
What is Cryptocurrency?
Cryptocurrencies are actually an extremely revolutionary idea in the sphere of finances
and technologies, reshaping the relationship of a person to the concept of money and its use. The very
basic definition may be that a cryptocurrency is some kind of money that is digital or virtual, with
cryptography used as a way of conducting self-security measures within its network. In contrast to the
usual, traditionally issued government-issued currencies, known as fiat, cryptocurrencies work on the
basis of decentralized networks using blockchain technology.
Bitcoin, created by an unknown person or group of persons under the pseudonym Satoshi
Nakamoto way back
in 2009, marked the real beginning of the era of cryptocurrencies
Here are a few examples:
-
Bitcoin was
initially developed primarily to be a form of payment that isn't controlled or
distributed by a central bank. While financial institutions have traditionally been
necessary to verify that a payment has been processed successfully, Bitcoin
accomplishes this securely, without that central authority.
-
Ethereum uses the same underlying technology as
Bitcoin, but instead
of strictly peer-to-peer payments, the cryptocurrency is used to pay for
transactions on the Ethereum network. This network, built on the Ethereum blockchain, enables entire financial ecosystems to
operate without a
central authority. To visualize this, think insurance without the insurance company,
or real estate titling without the title company.
-
Scores of altcoins
(broadly defined as any cryptocurrency other than Bitcoin) arose to capitalize on
the various — and at times promising — use cases for blockchain technology.
How Does Cryptocurrency Work?
Cryptocurrency is a digital or virtual form of currency, which uses cryptography as its
security backbone, such that it is very hard to counterfeit. The main interesting facet is that unlike
normal currencies, cryptocurrencies are decentralized. This basically means that no government or bank
can control them.
Distributed ledger technology, usually a blockchain, serves as the decentralized public
record of
financial transactions for the cryptocurrencies. Bitcoin is one of the most famous ones, invented in
2009.
Cryptocurrencies are generated by a process involving mining, where transactions on the
blockchain have
been verified by the computational power taken to solve complex math problems. The reward for the miners
solving these problems right is given in cryptocurrency.
Trading in cryptocurrencies is highly speculative and involves the exchange of an underlying
asset at
seriously varying prices within a single day. Through volatility, investing in cryptocurrencies is risky
and may not be suitable for all investors. Care needs to be taken in fully understanding these risks and
seeking advice from a financial advisor before any investment in such.
Here are a few examples:
-
Bitcoin was
initially developed primarily to be a form of payment that isn't controlled or
distributed by a central bank. While financial institutions have traditionally been
necessary to verify that a payment has been processed successfully, Bitcoin
accomplishes this securely, without that central authority.
-
Ethereum uses the same underlying technology as
Bitcoin, but instead
of strictly peer-to-peer payments, the cryptocurrency is used to pay for
transactions on the Ethereum network. This network, built on the Ethereum blockchain, enables entire financial ecosystems to
operate without a
central authority. To visualize this, think insurance without the insurance company,
or real estate titling without the title company.
-
Scores of altcoins
(broadly defined as any cryptocurrency other than Bitcoin) arose to capitalize on
the various — and at times promising — use cases for blockchain technology.
CryptoCurrencies have many usecases in present World. some of them are
-
Digital Payments
-
Investment and Speculation
-
Decentralized Finance (DeFi)
-
Smart Contracts and dApps
-
Cross-Border Transactions
-
Tokenization of Assets
-
Privacy and Security
-
Crowdfunding and Fundraising
-
Supply Chain Management
-
Identity Verification
-
Charity and Philanthropy
-
Gaming and Virtual Goods
Pros and cons of cryptocurrency
Cryptocurrency inspires passionate opinions across the spectrum of investors. Here are a few
reasons that some people believe it is a transformational technology, while others worry it's a fad.
Cryptocurrency pros
-
Some supporters like the fact that cryptocurrency removes central banks from managing the
money supply since over time these banks tend to reduce the value of money via inflation.
-
In communities that have been underserved by the traditional financial system, some people
see cryptocurrencies as a promising foothold. Pew Research Center data from 2021 found that
Asian, Black and Hispanic people "are more likely than White adults to say they have ever
invested in, traded or used a cryptocurrency.
-
Other advocates like the blockchain technology behind cryptocurrencies, because it’s a
decentralized processing and recording system and can be more secure than traditional
payment systems.
-
Some cryptocurrencies offer their owners the opportunity to earn passive income through a
process called staking. Crypto staking involves using your cryptocurrencies to help verify
transactions on a blockchain protocol. Though staking has its risks, it can allow you to
grow your crypto holdings without buying more.
Cryptocurrency cons
-
Many cryptocurrency projects are untested, and blockchain technology in general has yet to
gain wide adoption. If the underlying idea behind cryptocurrency does not reach its
potential, long-term investors may never see the returns they hoped for.
-
For shorter-term crypto investors, there are other risks. Its prices tend to change rapidly,
and while that means that many people have made money quickly by buying in at the right
time, many others have lost money by doing so just before a crypto crash.
-
Those wild shifts in value may also cut against the basic ideas behind the projects that
cryptocurrencies were created to support. For example, people may be less likely to use
Bitcoin as a payment system if they are not sure what it will be worth the next day.
-
The environmental impact of Bitcoin and other projects that use similar mining protocols is
significant. A comparison by the University of Cambridge, for instance, said worldwide
Bitcoin mining consumes more than twice as much power as all U.S. residential lighting
. Some cryptocurrencies use different technology that demands less energy.
