What is a cryptocurrency?
Cryptocurrencies have many definitions. A cryptocurrency can be defined as a digital currency created from a computer code. A cryptocurrency can also be defined as a string of data encoded to signify a unit of currency. There are many cryptocurrencies the most popular being bitcoin. Unlike conventional currencies, cryptocurrencies are free of government oversight and manipulation. They are monitored via peer-to-peer Internet protocols.
Cryptocurrencies are created through ”mining” i.e. adding transaction records to the public ledger of the cryptocurrency in question. Cryptocurrency transactions happen instantly and are known to the entire network. The transactions must be confirmed to be finalised. Cryptocurrency transactions aren’t reversible or forgeable when they are confirmed.
To understand cryptocurrencies in depth, you need to understand their revolutionary, transactional and monetary properties.
Revolutionary properties of cryptocurrencies
Cryptocurrencies stand out from regular currencies because of their properties the most notable being their revolutionary properties. As mentioned above, cryptocurrencies have no oversight body i.e. government or a central bank that can create/influence supply or demand. Cryptocurrencies aren’t just entries in a database as is the case with conventional currencies. Cryptocurrency databases can’t be changed by anyone you can’t see or rules you don’t know.
The currencies derive their name from the fact that the consensus-keeping has been secured using strong cryptography. Unlike regular currencies, cryptocurrencies are secured by math and not trust or people. This makes cryptocurrencies favourable alternatives of regular currency because there is a very slim chance of them being compromised.
Transactional properties of cryptocurrencies
a. Cryptocurrencies are irreversible
Once a transaction is confirmed, it can’t be reversed by anybody including the creators of cryptocurrencies (miners) or government bodies.
Cryptocurrencies are also pseudonymous meaning accounts and transactions involving cryptocurrencies aren’t connected to any real world identities. Bitcoins are received via addresses which are simply random chains of approximately 30 characters. Although it is possible to assess cryptocurrency transaction flow, it is impossible to connect addresses with the real world identities of users. This property makes cryptocurrencies unmatched in regards to confidentiality.
Cryptocurrency transactions are instant. Transactions are confirmed in a few minutes.
d. Global reach/use
Cryptocurrency transactions take place in a worldwide network of computers which are indifferent of a user’s physical location. You can send/receive money from anywhere.
e. Unmatched security
Cryptocurrency funds are securely locked in a cryptography system which is accessible to the owner only using a private key. Cryptocurrencies are secured by strong cryptography and numbers which are impossible to break.
f. No permission to use
You are free to use cryptocurrencies as you wish. You don’t need any permission to use bitcoins. You can download the respective cryptocurrency software for free, install it and start receiving and sending bitcoins or any other cryptocurrencies.
Monetary properties of cryptocurrencies
a. Controlled supply
Cryptocurrencies are attractive in comparison to conventional currency because their supply is controlled. The supply of cryptocurrencies like Bitcoin decreases with time. Supply is controlled using schedules written in the cryptocurrency code. This simply means that the supply of any cryptocurrency at any time in the future can be estimated today.
b. No debt
Unlike fiat currency, cryptocurrencies aren’t created by debt. Cryptocurrencies represent themselves. They are not loaned into existence like fiat money.
Cryptocurrencies have a revolutionary impact when you consider their properties. Because cryptocurrencies are pseudonymous, irreversible and you don’t require permission to use them, they solve the problems associated with fiat money. Governments and central banks can’t manipulate cryptocurrencies at the expense of citizens. They can’t prohibit citizens to receive/send money or reverse transactions either.
The controlled supply of cryptocurrencies and global reach/use makes them the perfect currency of the future. Cryptocurrencies are here to stay. So far, they have proven to be the best alternative for fiat money. Although cryptocurrencies are not immune to speculation, they are still a better alternative.