Cryptocurrencies have become global phenomena today. Though still mysterious and not understood by many people, governments, individuals, banks, and companies have come to appreciate their importance and embrace them. In 2016, many software firms and companies researched cryptocurrencies or commenced blockchain projects.
Notably, many are the people, including the top leadership of companies seeking to engage in blockchains but do not appreciate what cryptocurrencies are. In this post, we explore the origin, demystify the myths, and decipher the pros and cons of using cryptocurrencies.
What exactly is Cryptocurrency?
Cryptocurrency is a virtual/digital type of currency that utilizes cryptography for security. This security element has become very difficult, almost impossible to counterfeit. Besides, unlike the local currencies, cryptocurrencies are organic (they are not issued by any central authority/government).
This makes them immune theoretically from manipulation and interference from governments. Cryptocurrency was borne from the need to maintain anonymity using computer science and mathematical theory. This anonymity has made cryptocurrencies a perfect model of hosting reprehensible activities such as tax evasion and money laundering. It is prudent to note that the recent cyber criminals behind Wannacry attacks that hit Europe in May insisted on getting paid in Bitcoins.
The first Cryptocurrency that made the digital currency famous was Bitcoin that was launched by a Satoshi Nakamoto in 2009. By the end of 2015, over 14.6 million with a market value of about $3.4 billion were in circulation. This success has attracted introduction of competing cryptocurrencies. The main types of Cryptocurrencies include the following;
• Bitcoin (This is the most famous Cryptocurrency in the world)
How does Cryptocurrency work?
Cryptocurrency uses decentralized technologies that allow users to make secure payments and even store funds without using their organizations’ logo or personal names. They run on a network of public ledger referred as blockchain that holds info or all updated transactions and data of currency
Cryptocurrency units are created using data mining (a process involving complicated computing algorithm to solve mathematic problems that generate coins). Users can also purchase coins from the current brokers, store them, and spend in various cryptographic wallets.
The main properties of Cryptocurrencies
To understand cryptocurrencies, even more, it is important to know the following characteristics.
(i) Irreversible: Once a specific transaction has been confirmed, it is irreversible. This means that nobody, whether you or miners can make changes. If cash is sent to the wrong person or a scammer, it is gone forever!
(ii) Pseudonyms: Unlike the common bank accounts that have links to owners, Cryptocurrencies’ transactions and accounts have no link to real world entities.
(iii) Rapid and international: Once a transaction is propagated and confirmed, it is instant within the global networks.
(iv) It is permission-less: This is not like the common capital market trading where your trade account has to be confirmed and permitted by relevant authorities. Rather, all you need with Cryptocurrency is having the software installed on your computer to start receiving and sending coins. No authorization is needed.
(v) Controlled supply: Many cryptocurrencies limit tokens supply. In most of the cases, the supply decreases over time and has a predicted timeline so that the monetary supply at any one point can be calculated today. This means you can operate without surprises.
Pros and cons of Cryptocurrencies
Many people have been wondering whether it is beneficial to use Cryptocurrencies. Here are the main pros and cons of using them.
• They are secure and provide users with a high level of anonymity
• Because transactions are irreversible, attract low fees and cannot be faked, many users consider them more reliable than the conventional currencies.
• Since they are decentralized, it means they are open to all. This is different from banks that insist on many preconditions such as nationalities.
• As a new type of cash, markets are taking off the meaning of small investing because traders can make huge sums within a very short time.
Because the trading in cryptocurrencies is driven by demand and supply, the risks involved are monumental. Just like you can gain a lot overnight, the risk of losing is equally high. The high level of anonymity has made cryptocurrencies to get associated with the dark web. Most hackers, illegal traders, and drug dealers prefer to use cryptocurrencies to keep their cash safe and free from authorities.