Last year, bitcoin had a terrible start
to the year, losing 30% of its value in the first quarter. Since then, it has
not recovered back to its pre-2017 levels, and some analysts predict that it
may soon be dead. While there are other cryptocurrencies out there
competing with bitcoin, most of them have even less value than bitcoin.
It seems like cryptocurrency as an asset class might just be on its way
out unless something changes quickly. But could the blockchain
technology behind cryptocurrency actually end up saving it?
What is a cryptocurrency?
The word cryptocurrency is a portmanteau
of cryptography and currency. It refers to digital currencies based on blockchains
such as Ethereum, ripple, litecoin, and others. The system behind cryptocurrencies
is blockchain technology which was originally invented by Satoshi Nakamoto in 2008 and
was designed to allow users to make transactions without an intermediary or
middleman. For example, when buying a house with cash instead of using your
bank. Satoshi’s goal was not to use bitcoin for financial
transactions but rather as a way to transfer money between two individuals with
no third party involved which means no banks are required. Blockchain allows
digital information to be distributed but not copied, unlike traditional
database systems which are centralized and controlled by one authority, who
maintains governance over its data.
How do cryptocurrencies
work:
They can be traded for cash or used to purchase
goods and services in real-time. The technology behind them is pretty advanced,
but at its core, it’s similar to sending cash digitally. In fact, cryptocurrency
is essentially just digital money that you store on your computer, on a
physical wallet device like a USB key, or even on an encrypted piece of paper.
What makes cryptocurrency so revolutionary is that you don’t need anyone
else—like a bank—to give you permission before you buy something with it or
send it across borders. Many people say that cryptocurrencies are one of
our best hopes for financial inclusion—making money and financial services more
accessible to everyone around the world who needs them most.
Blockchain:
Although there is a great deal of buzz around cryptocurrencies,
most people have no idea how cryptocurrencies actually work. The most
famous cryptocurrency by far is Bitcoin, which is based on blockchain
technology. Blockchain provides new ways to make and verify transactions
that are immune to fraud and tampering because they are decentralized across
every computer that uses them. Every transaction has a digital signature that
can only be created by its true owner, which means it cannot be faked or
duplicated, unlike a traditional paper check. Even if someone had your private
key (which you should keep as secure as possible), it couldn’t be used without
your permission, because no one else would know what it was for or what it
said.
Types of Cryptocurrency:
The cryptocurrency market is made up of
more than a thousand different types of coins. Some are essentially
worthless, others serve very niche purposes, and some are direct competitors of
each other. To know how cryptocurrency can be used for solving issues in
real-world business, it’s important to break down all cryptocurrencies
into their basic groups. The most common categories are forks (or hard forks),
smart contracts, privacy coins, and stablecoins.
Advantages of using crypto
coins:
The first advantage is that all transactions
are encrypted. No one, not even your bank or payment processor, can see what
you purchased, where you bought it, or how much you paid for it. Crypto coins
also have almost no transaction fees. If a merchant accepts digital
currency and doesn’t convert it into cash right away (they don’t have to accept
cryptocurrency to accept credit cards), they may charge an average
fee of 1% per transaction. Lastly, unlike traditional payments methods
like checks and ACH transfers which are reversible in as little as 10 days if
fraud occurs, cryptocurrency is non-reversible and cannot be charged
back. This is particularly useful for those who like to buy expensive items
online without fear of having their accounts stolen.
Disadvantages of using
crypto coins:
Unlike government-backed money, there are
no legal protections if you lose your crypto coins or
someone steals them. In addition, you have to trust your cryptocurrency
provider will be around in years when bitcoin may not be that popular.
Companies can also disappear with users' funds. If a company is hacked or
otherwise disappears, cryptocurrency users may lose all their cash and
find it impossible to recover their virtual funds. That's why some people turn
to online exchanges when they want to buy and sell cryptocurrency
instead of trusting individual sellers. These digital marketplaces match buyers
and sellers, which creates an added layer of protection for those who use these
services because now they're dealing with a trusted third party rather than an
anonymous person in their neighborhood who claims he has a way for them to get
rich quick.
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