Since the word Cryptocurrency started dominating the financial world, there has been a lot of buzz about the subject. But not too many people really know about the term “Cryptocurrency”. It is in this light that we will through this article provide you with all the necessary information you need to arm yourself with in order to understand the term Cryptocurrency.
The Crypto world is an exciting technology that has created a paradigm shift in how financial transactions are conducted. Whether you are sending, receiving, investing or making purchases, the crypto technology has disrupted the traditional ways of achieving all these.
The cryptocurrency market is currently valued over $USD170 billion. Surprised? Isn’t it? Well, that is the market value. Which means if you’re not in the crypto market as an investor, you’re really missing out? The first cryptocurrency was invented over 8 years ago by Satoshi Nakamoto. With this information and more to come, ride with us as we walk you through the subject of Cryptocurrency.
MEANING OF CRYPTOCURRENCY-
A lot of pundits have given a various definition of cryptocurrency. However, leveraging all standards and crypto market indices, cryptocurrencies can be defined as a digital form of money which permits direct, fast and seamless transactions between senders and receivers without the interference of Regulatory Authorities.
Cryptocurrencies allow you to control your balances and payment with transparency and ease. All crypto transactions rely on the crypto network – the blockchain technology; hence no central authority regulates or controls the crypto world.
In the financial world of today, credit card companies and financial institutions act like a gatekeep. They keep and manage your money. They charge you all sorts of sundry changes and are subject to regulations from the Government. They maintain a single database which is under the control of the Central bank.
Hackers can pry through the database to steal funds. However, Cryptocurrencies do not operate in that fashion. There is no central authority regulating the crypto ecosystem. Cryptocurrencies operate much like a distributed ledger; hence making it difficult for hackers and scammers to steal peoples’ money.
In addition, the speed of crypto transaction is super-fast. Within a few seconds, someone in India can transfer money to a receiving party in Egypt. Unlike the traditional banking system which takes hours or some cases days for a single transaction to be processed.
Cryptocurrencies are referred to as digital coins, particularly in the crypto ecosystem. They are stored in a digital wallet, from where you can send or make purchases. The wallet is protected with the aid of private keys. These keys should not be disclosed to a third party.
Anyone with access to your private keys can steal your crypto coins. Therefore, it is important that you protect your private keys with jealousy. There are several digital wallets on the market. You can even download a digital wallet app on your phone to start making the transaction. That is how cryptocurrency can get.
HOW DOES CRYPTOCURRENCY WORKS?
Cryptocurrencies were created leveraging a technology known as the blockchain technology. The blockchain technology is an innovation which many applications can use to conduct fast and seamless transactions. Cryptocurrency is just one of the few applications that currently make use of the blockchain technology. Developing cryptocurrencies would not have been possible without the blockchain technology. At this juncture, we know you’d be wondering what the blockchain technology is all about and how it operates. Let’s briefly take you through the meaning of the blockchain technology.
A blockchain is a difficult and complex mathematical puzzle based on a concept known as “hash.” Computers seek to solve these complex puzzles. Once a computer can solve this complex problem, then a cycle (block) has been completed or created. One of the fundamental property of a block is that once the details or data has been altered, it becomes invalid or broken. The only way to fix the problem is to insert the correct or original data in place of the incorrect data. In addition, once a new block is developed, it will take some data from the previous block in order to create a link; hence the term “blockchain”. At any point on the link, if a data or information is altered, the entire blockchain becomes invalid. Generally, blockchain is used to store immutable transactions for Cryptocurrencies.
The mathematical puzzle mentioned above are usually solved by those who we regard as miners. Miners can bundle transactions together with their skills to solve these mathematical puzzles. The process of solving these puzzles is what is known as mining. Since mining is a difficult process, it requires heavy computers which obviously cost a lot of money. Also, the computers would be powered with electricity and some forms of cooling mechanism would be incorporated to enable the computers to work at optimal capacity. In order to encourage miners to keep mining, they are rewarded each time to successfully mine a coin. The reward can be in form of coins or transaction fees or even both. In addition, miners ensure that all cryptocurrencies transactions are safe and seamless. They achieve this by ensuring that senders have the required balance of the amount they intend to send. They also ensure that senders’ identities are not revealed. Those into the business of mining Cryptocurrencies are making a lot of money. But remember, they also have lots of bills to pay, like electricity cost and the cost of providing a cooling system to regulate the operating temperature of the computers.
DISTRIBUTED LEDGER AND CONFIRMATION-
If you so desire you can get a copy of the blockchain so that once miners successfully solve a complex mathematical problem, you get to know because they would announce it on the network in order to gain acceptance of the block. Other miners on the network will carry out a verification exercise to determine the validity of the new block so that a fake miner does not take advantage of the network to create a fake block. So, once the new block is verified, it would be added to the existing blockchain. As miners create new blocks and then added to the existing blockchain, older blocks are considered confirmed. As new blocks are added, there is more confirmation; hence people will trust the transactions. A distributed ledger is when the network verifies the transaction ledger within a time frame.
ARE CRYPTOCURRENCIES SECURED?
Just like the paper-based currency we spend, the issue of cryptocurrency security has gained prominence in recent times. However, there are security features that have been embedded in the crypto coins in order to protect the coins and the entire blockchain network.
One of the means of securing cryptocurrency is the introduction of private keys before a digital wallet can be accessed. Holders of digital wallet should guide their private keys with caution. They should not disclose these keys to third parties.
As earlier mentioned, cryptocurrencies make use of the blockchain technology to effect a seamless transaction. With the use of the blockchain technology, it becomes practically impossible to edit a crypto transaction once it has been processed.
Cryptocurrencies are safer when compared to the traditional banking sector. For instance, hackers can pry through the database of a bank to illegally transfer peoples’ money. But since Cryptocurrencies do not use any database apart from the blockchain technology, it becomes difficult for hackers to pry through the blockchain.
Since cryptocurrencies pose a serious threat to the traditional banking sector, governments all over the world have strived to understand the technology behind the workability of cryptocurrency with a view to enacting legislation to properly regulate it.
Some countries have made effort to regulate the sale of coins through a policy framework. China, for instance, expressed readiness early this year to strengthen crypto regulation in the country. The Chinese government took the decision to regulate crypto Exchanges because some ICO (initial Coin Offering) providers raised money from members of the public through phony means.
Also, in India, the government through the Finance Ministry set up a committee to look into cryptocurrency regulation. The committee after their first meeting asserted that before the end of 2018, Cryptocurrencies Regulatory framework would be ready. Earlier before the committee was set up by the Modi government, the Finance Ministry and the Reserve Bank of Indian had expressed readiness to adopt the use of the blockchain technology and cryptocurrencies.
TOP FOUR CRYPTOCURRENCIES-
Below is a list of top cryptocurrencies based on market capitalisation:
- Bitcoin: In terms of market capitalisation, Bitcoin is the number one Cryptocurrency on the market. It was the first coin that was created. E-commerce portals such as Amazon and Overstock.com now accept Bitcoin as a means of payment. Bitcoin is currently valued over $96 billion.
- Ethereum: Ethereum by default was designed to enable companies to deploy their applications on the blockchain technology. It is currently valued over $28 billion.
- Ripple: Ripple with the symbol “XRP” is a cryptocurrency which was developed to assist financial institutions to process trans-border payment with ease. The market value of Ripple is over $7.8 billion.
- Litecoin: Litecoin with the symbol “LTC” was created in 2012. The intention of creating Litecoin was to create a “lite” coin of Bitcoin. Litecoin supports global payments within seconds. The current market value of Litecoin is over $2.9 billion.
HOW TO STORE CRYPTOCURRENCIES?
Under the traditional paper-based currencies which we use to make purchases, Cryptocurrencies can only be stored using a digital wallet. There are different types of digital wallet you can choose from. Each with its own peculiar features. However, digital wallets can be grouped into two categories – cold and hot digital wallet. A cold wallet is often regarded as an offline wallet. They are the most secured digital wallet on the market.
If you hold a digital wallet, you will be provided with a private key which you will use to access your wallet. You can send, receive or make payment to and fro your wallet. Each wallet has its unique address. It is this address that you will use to receive coins into your wallet.
Cryptocurrency Exchanges are basically a platform where you can trade Cryptocurrencies for profits. Exchanges are broadly grouped into two categories. The first category is known as fiat gateway.
The fiat gateway allows crypto users to deposit and withdraw their earning in fiat currency. Fiat currency in this article refers to the paper-based currency which we all know. Examples of fiat currencies are USD, AUD, INR, GBP, and EUR, among others. Popular fiat gateways that you can open an account with are:
However, fiat gateway has the problem of limited Cryptocurrencies. Out of the over 1500 Cryptocurrencies on the market, fiat gateway would only list about 5 or 6 coins for their users to trade.
Hence, you are limited in your choice of coins to invest in. On the other hand, the second category of Exchanges supports the listing of several Cryptocurrencies. Examples of this type of Exchange are: