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Cryptocurrency: All You Need To Know About The Controversial Digital Money
Terms like cryptocurrency, blockchain, cryptography, and many more are trending so much nowadays. Many global leaders regard the whole concept to be just a scam, while many others believe it’s the next big thing. Even the business tycoon Elon Musk bats for it! However, for most, these are just confusing terms. Well, If you are perplexed too, then you have landed at the right place! This blog post will take you from a crypto noob to becoming a crypto pro, if not a genius. It might seem like a little bragging but believe us the idea of this blog post is to make your concepts clear. Continue reading as we help you decode everything revolving around cryptocurrency which might help you explain those cool words to other crypto noobs like a crypto-god.
The birth of Cryptocurrency
To learn more about cryptocurrency, it’s important to go back a little to history, to 6000 BC maybe. It’s important to understand the origin of currency, yes we are taking you back to the barter system age. It is believed that the barter system came into existence in 6000 BC when Phoenicians used this concept for the exchange of goods. However, it was highly problematic as exchanging a cat for a horse to kill hunger makes absolutely no sense. The whole barter system was then replaced by precious gold and silver coins used during the age of kings and emperors like Persian, Ottoman, Romans, Mughals, etc.
Fast forward to the era of paper money. Those precious coins were replaced by paper money which is issued by a central authority affirming its legality on the tender. Yes, we are now into the age where we have multiple currencies like Indian rupee, American dollar, pound sterling, euro, etc. issued by different countries. Now, this concept might seem already familiar to the current-generation but there is another gradual evolvement to this, which is online transactions where money is moved from one point to another virtually. In banking transactions, the only thing that is changing is the amount balance in a database of your bank account. These transactions could be done using the web, email, mobile, upi, card machines and ATM machines.
While the struggle to understand the concept of online banking continues even in 2022, the world was introduced to cryptocurrency called Bitcoin in 2009. Well, the origin of digital cash dates back to 1983, according to Wikipedia, but the inception of Bitcoin became the game changer.
In simpler terms, in doing the online bank transactions those databases were being maintained by a central authority which was your bank. However, in the age of cryptocurrency those databases are not maintained by a central authority or a bank but owned and maintained publicly on the technology called the blockchain. The currency in which the amount is being stored is called cryptocurrency. So, the fundamental of decentralization works here. Sounds rocket science? Don’t worry we have that covered for you in the next point.
What are BlockChain and Cryptography?
The straight answer is, blockchain is a system of many computers or servers linked together across the globe, which holds that information or transaction database that you did. In this system, all the discrete computers or servers are called blocks and they are interconnected by cryptography, which serves as encryption to avoid the database getting tampered with. These computers and servers are basically doing crypto-mining, the term you might have heard a lot, the owners of these servers earn the cryptocurrency as compensation.
So, each block stores the transaction data but apart from that it also contains a cryptographic hash. The cryptographic hash is a mathematical algorithm that maps data of a random size to a fixed size. It is, indeed, a function that is practically impossible to invert or reverse the computation.
The benefits of Cryptocurrency
The key feature of cryptocurrency is that they are decentralized and secure. This means that the currency is not influenced and regulated by a central authority, which makes international payments hassle-free. Here you need:
- Not to wait for half a day for the transaction to complete
- Not to worry about the spending limits
- Not to worry about the exchange and interest rates.
Apart from this, the transactions done are highly secure and anonymous, which gives high assurance to the users.
The drawbacks of Cryptocurrency
As these cryptocurrencies are completely digital and new to the market, their actual value cannot be determined, unlike gold and other precious things. Disadvantages:
- Volatility – The prices of these currencies are always fluctuating.
- Usage – Acceptance of these currencies remains a big concern. Though they are acceptable on a few platforms, they are unacceptable on many others. Even the famous cryptocurrencies like Bitcoin and Ethereum are yet to earn that trust. To make matters worse for the cryptocurrency market, many countries have completely banned the usage of cryptocurrencies.
- Power – Cryptocurrencies use a lot of power to operate, which is not good for the environment. This is because the same data is getting operated and stored in all the blocks connected.
- Illegal activities – As these crypto transactions are safe and anonymous, this also makes the illegal transactions easy and almost non-traceable. The cryptocurrency has also become prone to money laundering. According to blockchain data company Chainalysis, $8.6 billion of cryptocurrency was laundered in 2021, up by 30% from 2020.
While cryptocurrency is acceptable in many countries like the USA, Australia, etc., India is yet to recognize it as legal digital money. Union minister Bhagwat Karad has clearly stated that cryptocurrencies are not legal in India. “There is information that some people have invested in cryptocurrencies. Thus, 30 percent tax has been proposed on transactions (connected to them) in the union budget,” Union minister Bhagwat Karad was quoted as saying by NDTV.
While we continue to explore cryptocurrency, watch this space as we dive deep into digital money.