#263Tech: What is Cryptocurrency and How does it work?
Cryptocurrency is a form of digital money that is designed to be secure, invisible than hard currency and specifically works in automated banking systems.
It is a currency associated with the Internet that uses cryptography. Remember, cryptography is the process of converting legible information into an almost uncrackable code, to track purchases and transfers. The emergence of cryptocurrency was mainly fueled by the rising need to counter security issues tormenting bankers in this Internet age era where hacking is very rife.
Originally, cryptography was born out of the need for secure communication in the Second World War. It has evolved in the digital era with elements of mathematical theory and computer science to become a way to secure communications, information and transfer of money online.
The first cryptocurrency was bitcoin, which was created in 2009 and is still the best known. There has been a proliferation of cryptocurrencies in the past decade and there are now more than 900 available on the Internet.
Brief Look Into Bitcoin: A digital currency, used to make payments of any value without fees. It runs on the blockchain, a decentralised ledger kept running by “miners” whose powerful computers crunch transactions and are rewarded in bitcoins. It was invented by Satoshi Nakamoto, a secretive Internet user in 2008 before it went online in 2009. Many attempts to identify Satoshi have been made without conclusive proof.
How do Cryptocurrencies work?
Cryptocurrencies use decentralized technology to let users make secure payments and store money without the need to use their name or go through a bank. They run on a distributed public ledger called blockchain, which is a record of all transactions updated and held by currency holders.
Units of cryptocurrency are created through a process called mining, which involves using computer power to solve complicated maths problems that generate coins. Users can also buy the currencies from brokers, then store and spend them using cryptographic wallets.
Cryptocurrencies and applications of blockchain technology are still nascent in financial terms and more uses should be expected. Transactions including bonds, stocks and other financial assets could eventually be traded using the technology.
Why would you use a Cryptocurrency?
Cryptocurrencies are known for being secure and providing a level of anonymity. Transactions in them cannot be faked or reversed and there tend to be low fees, making it more reliable than conventional currency. Their decentralised nature means they are available to everyone, where banks can be exclusive in who they will let open accounts.
As a new form of cash, the cryptocurrency markets have been known to take off meaning a small investment can become a large sum over night.
But the same works the other way. People look to invest in cryptocurrencies should be aware of the volatility of the market and the risks they take when buying.
Because of the level of anonymity they offer, cryptocurrencies are often associated with illegal actvity, particularly on the dark web. Users should be careful about the connotations when choosing to buy the currencies.