Cryptocurrency – A Digital Coin
In the times that we’re living in, technology has made unbelievable advancement as compared to any time in the past. This evolution has redefined the life of man in almost every aspect. This evolution is an ongoing process and thus, human life on earth is improving constantly day in and day out. One of the latest inclusions in this aspect is cryptocurrencies.
“Cryptocurrency is a digital alternative to using credit cards or cash to make everyday payments in a variety of situations”.
It continues to grow as a workable alternative to traditional payment methods but still needs to become more stable before it is fully welcomed by ordinary people.
In other words, cryptocurrency is nothing but digital currency, which has been designed to impose security and anonymity in online monetary transactions. It uses cryptographic encryption to both generate currency and verify transactions. The new coins are created by a process called mining, whereas the transactions are recorded in a public ledger, which is called the Transaction BlockChain.
The first cryptocurrency:
The very first cryptocurrency was introduced in the year 2009 and is still well known all over the world. Many more cryptocurrencies have since been introduced over the past few years and today you can find so many available over the internet.
Evolution of cryptocurrency is mainly attributed to the virtual world of the web and involves the procedure of transforming legible information into a code, which is almost uncrackable. Thus, it becomes easier to track purchases and transfers involving the currency.
Cryptography, since its introduction in World War II to secure communication, has evolved in this digital age, blending with mathematical theories and computer science. Thus, it is now used to secure not only communication and information but also money transfers across the virtual web.
Different types of cryptocurrency:
Bitcoin is the first decentralized cryptocurrency that uses blockchain technology to facilitate peer-to-peer payments. Instead of using a central bank or trusted third party to control the supply of the currency or verify transactions, the distributed blockchain acts as a ledger of all transactions in the history of bitcoin.
That ledger allows a party to prove they own the bitcoin they’re trying to send and prevents the double-spending problem associated with previous forms of digital cash.
Ethereum is a platform that uses blockchain technology to enable the creation of smart contracts. Smart contracts are bits of code that can be written to the blockchain, making them practically impossible to change.
When you want to use the contract, you create a new transaction on the Ethereum blockchain referencing the contract, and the network verifies the transaction.
Ripple is a platform designed to make it fast and easy to transfer money between countries. It uses its cryptocurrency, also called Ripple, to record transactions on the blockchain ledger.
Users convert their currency to Ripple, request the transaction on the Ripple blockchain, and the receiver will convert the Ripple currency back into their currency on the other end. Ripple’s blockchain notably doesn’t use mining like most other cryptocurrencies, instead of relying on a fixed supply of the currency currently held in time-locked contracts.
How does cryptocurrency work?
This kind of digital currency makes use of technology that is decentralized to allow the different users to make payments that are secure and also, to store money without necessarily using a name or even going through a financial institution. They are mainly run on a blockchain. A blockchain is a public ledger that is distributed publicly.
The cryptocurrency units are usually created using a process that is referred to as mining. This usually involves the use of computer power. Doing it this way solves the math problems that can be very complicated in the generation of coins.
“Users are only allowed to purchase the currencies from the brokers and then store them in cryptographic wallets where they can spend them with great ease”.
Cryptocurrencies and the application of blockchain technology are still in the infant stages when thought of in financial terms. More uses may emerge in the future as there is no telling what else will be invented.
The future of transacting on stocks, bonds and other types of financial assets could very well be traded using the cryptocurrency and blockchain technology in the future.
How to use cryptocurrency?
It is very easy for ordinary people to make use of this digital currency. Just follow the steps given below:
- You need a digital wallet (obviously, to store the currency)
- Make use of the wallet to create unique public addresses (this enables you to receive the currency)
- Use the public addresses to transfer funds in or out of the wallet
A cryptocurrency wallet is nothing else than a software program, which is capable to store both private and public keys. In addition to that, it can also interact with different blockchains, so that the users can send and receive digital currency and also keep a track on their balance.
The way the digital wallets work:
In contrast to the conventional wallets that we carry in our pockets, digital wallets do not store currency. The concept of blockchain has been so smartly blended with cryptocurrency that the currencies never get stored at a particular location.
Nor do they exist anywhere in hard cash or physical form. Only the records of your transactions are stored in the blockchain and nothing else.
Understanding the cryptocurrency address:
By nature, it is a public address with a unique string of characters. This enables a user or owner of a digital wallet to receive cryptocurrency from others. Each public address, that is generated, has a matching private address. This automatic match proves or establishes the ownership of a public address.
As a more practical analogy, you may consider a public cryptocurrency address as your eMail address to which others can send emails. The emails are the currency that people send you.
A real-life example:
Suppose, a friend sends you some digital currency, say in the form of bitcoin. What this friend does is he transfers the ownership of the coins to the address of your wallet. Now, when you want to use that money, you’ve unlocked the fund.
To unlock the fund, you need to match the private key in your wallet with the public address that the coins are assigned to. Only when both these private and public addresses match, your account will be credited and the balance in your wallet will swell. Simultaneously, the balance of the sender of the digital currency will decrease. In transactions related to the digital currency, the actual exchange of physical coins never takes place at any instance.
Why use cryptocurrency?
One of the main traits of these currencies is the fact that they are secure and that they offer an anonymity level that you may not get anywhere else. There is no way in which a transaction can be reversed or faked. This is by far the greatest reason why you should consider using them.
The fees charged on this kind of currency are also quite low and this makes it a very reliable option when compared to the conventional currency. Since they are decentralized in nature, they can be accessed by anyone, unlike banks where accounts are opened only by authorization.
Cryptocurrency markets are offering a brand new cash form and sometimes the rewards can be great. You may make a very small investment only to find that it has mushroomed into something great in a very short period. However, it is still important to note that the market can be volatile too, and some risks are associated with buying.
Advantages of using cryptocurrencies:
Let’s take a look at a few of the many advantages of using cryptocurrency:
Any issue with fraud is kept to a minimum because cryptocurrency is digital which can prevent a reversed or counterfeited payment. This type of action can be a problem with other traditional payment options, such as credit card, because of charge-backs.
There is no need to give personal information that can lead to identity theft when using cryptocurrency. If you use a credit card, the store is given a lot of information related to your credit line, even for a very small transaction.
Also, the credit card payment relies on a pull transaction where a specific amount is requested from an account. With a cryptocurrency payment, the transaction is based on a push basis, which gives the account holder the option to only send the exact amount due with no extra information.
Payment by cryptocurrency can easily be made to comply with certain terms. A digital contract can be created to make a payment subject to completing on a future date, reference external facts, or get third-party approval. Even with a special contract in place, this type of payment is still very fast and efficient.
The use of cryptocurrency is widely available to anyone that has access to the internet. It is growing very popular in certain parts of the world, such as Kenya, which has nearly 1/3 of the population using a digital wallet via the local microfinance service.
It is possible to complete a cryptocurrency transaction without having to pay extra fees or charges. However, if a digital wallet or third-party service is used to hold the cryptocurrency there is likely to be a small charge.
With nearly 1200 unique cryptocurrency types in the global market, there are plenty of opportunities to use a payment method that matches the specific needs. Even though there are plenty of options to use the coins for everyday use, there are also those intended for a specific use or in a particular industry.
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