What does Cryptocurrency mean?
Cryptocurrency is nothing but encrypted digital money, which is created with technology using cryptographic functions that help secure, control, and verify financial transactions and also protects the identity of the users. Cryptocurrency is more reliable, quick, and cheaper when compared to government-issued money. Blockchain is a decentralized technology comprised of a chain of blocks that collects and records the data of the users, which cannot be accessed by a third party. The concept of cryptocurrency can be quite confusing, to begin with. Let me walk you through the essential characteristics and functioning of cryptocurrencies.
How do cryptocurrencies work? Functions and benefits:
There are three categories of functions with a cryptocurrency, such as:
Transaction is the transfer of funds between two digital wallets. Before the exchange takes place, the transaction is submitted to a public ledger awaiting confirmation. The wallets are secured with a cryptographic signature, which makes sure that the transaction came from the owner of the wallet.
- Public ledger:
The next process is the public ledger. Once the transaction is confirmed, The public ledger verifies the ownership and stores the collected information in a “blockchain.”
Consensus is the process of confirming the transaction before storing it in a public ledger. The consensus model differs from blockchain to blockchain, for example, Bitcoin uses a Proof-of-Work, while Ethereum uses a Proof-of-Stake model, and so on. For instance, in Bitcoin, to add a transaction to the public ledger, the miner has to solve a problem, i.e., like a mathematical puzzle. In Bitcoin, mining is open-source, so anyone can add a transaction and the first miner to solve the puzzle, will be able to add the transaction to the blockchain.
This is how a cryptocurrency works, and this is how the exchange takes place. Now let’s have a look at what are the benefits of using a cryptocurrency.
- Decentralized Payments:
Cryptocurrencies are decentralized, which is one of the significant benefits, meaning the process of exchange is not controlled by any particular authority like banks or financial authorities. The transactions are controlled by an advanced technology called the blockchain, that stores, displays, protects, and transfers money without interference from any third parties.
- No Transaction Fees:
As mentioned earlier, cryptocurrencies are decentralized. Therefore, there are no extra fees charged for your transactions, unlike a credit card or debit card, depending on third parties, which will charge fees for transactions.
- Secured transactions and anonymity:
Cryptocurrencies are encrypted with cryptographic functions, which helps secure the transactions happening and alerts when a third party tries to access it. Also, it provides anonymity, which helps in protecting the identity of both the sender and the recipient and reduces theft risk.
- No Location Barrier:
Cryptocurrency transactions are not limited to any specific geographical location, and therefore the transactions can happen globally. The confirmation of the transaction will take minimal time and so crypto exchanges are faster than any other traditional systems.
- No authorization:
There is no special permission or approval required to use a crypto exchange system. Anyone can download it for free and accessible.
Rise of Cryptocurrency:
The concept of cryptocurrencies is widely evolving around business people. Many large companies and government corporations are coming forward to adopt cryptocurrency, especially the blockchain technology for exchange values. Financial service providers have started looking at the cryptocurrency model to improving in providing more efficient, cost-effective services. Blockchain technology is known as a second type of internet: the internet of value.
In the initial stages, i.e., Years ago, The concept of cryptocurrencies was not familiar to a large group of people, but it all changed in the year 2009 when bitcoin was brought into the light. Today, most people are familiar with cryptocurrencies even though they have no idea of its working process.
Let’s discuss in detail what is Bitcoin and what is the purpose behind the introduction of bitcoin.
Emergence and growth of Bitcoin in the market:
Bitcoin was initiated by an unknown person or a group of people under the name Satoshi Nakamoto, in the year 2008 and was active from 2009 after an open-source code was released. Bitcoin is a peer-to-peer exchange system coded with cryptographic functions that helps secure transactions. Every transaction that happens is recorded and verified in Blockchain.
The popularity of bitcoin is increasing every passing day as business people find the idea of decentralized and encrypted exchange system secure and efficient. Bitcoin is the most commonly used cryptocurrency among investors, marking capitalization of about $180 billion. Cryptocurrencies are referred to as “digital gold” and bitcoin as the “golden standard of cryptocurrencies.” As of today, bitcoin has hit a high of 7,205.54 USD. As mentioned earlier, it is after bitcoin; business magnets are moving towards digital cash systems like never before.
As we had discussed earlier in the article, Big companies and government authorities are open to adapt to the cryptocurrency exchange systems. If you’re a business magnet yourself, or if you are interested in trying your hands in creating a cryptocurrency, explore more, you can opt to blockchain technology solution companies like Blockchain App Factory, who is one of the leading tech solution providers working with a team of experts. If any queries, feel free to contact the team.