What is the Point of Cryptocurrency? (4 Reasons Why You Should Care)
It is possible that you have heard some of the names Bitcoin as well as Ethereum. They are reputable digital currencies. But what are they? Or a better question...what is the point of cryptocurrency?
Perhaps you've heard about Bitcoin and Ethereum. Also, you've probably heard that individuals make thousands, if not billions of dollars through "investing" in cryptocurrency. But what is it? A better question...what are the benefits of cryptocurrency?
The main point of cryptocurrency is to address the issues with traditional currencies in that it places the authority and accountability in the control of the holders of the currency. All of the cryptocurrencies adhere to the 5 properties and 3 functions of money. Each one of them tries to address one or more challenges in the real world. **
Let's talk about how cryptocurrency functions and the reasons why people are starting to recognize this next evolution of money.
Why You Should Care About Cryptocurrency
The term "cryptocurrency" refers to a digital version of money which can serve as an extremely secure means for exchange.
It is believed that as transactions are publicly accessible, irreversible, mostly unhackable and controlled by consumers, their financial transactions are secure.
It is true that the usage of cryptocurrency comes with numerous advantages. Here are some facts about cryptocurrency and four important reasons why you should care.
1. Cryptocurrency Is Owned By Everyone
Cryptocurrency works similarly to standard, nation-wide currency but there are a few fundamental differences.
Current " fiat currency " is created and is governed by an governmental entity, each of which is now a representation of are debt. Any person who owns a nation's currency has an "IOU" issued by that particular country.
"Cryptocurrency" does not mean credit. It is a symbol of self-expression, and its worth is determined by what someone will trade it for it.
The fact that cryptocurrency is decentralized plays an essential role in how the value of its currency is calculated.
The government does not own or control a cryptocurrency. The currency's value isn't determined by the policies or the central bank's monetary policy.
NOTE Certain people may see the absence of centralization of cryptocurrency as an opportunity to avoid taxes. But, just like bond and stock, cryptocurrency is considered to be an asset. In the United States, it's subject to capital gains tax upon any sale or exchange.
Currencies operating off a centralized ledger (meaning an individual entity that manages the record of transactions like a national central bank) are exposed to human manipulation and corruption. By being decentralized, cryptocurrency is based as the basis of a "distributed ledger" or a shared transaction list. This kind of ledger is the core of cryptocurrency. It it is the primary reason why cryptocurrency is important.
Cryptocurrency operates on a blockchain, which is the distributed ledger we talked about above. Understanding blockchain technology will help you not just be aware of what cryptocurrency to be about but also understand why it is the key to the potential of digital currency.
"Block on the "blockchain" is composed of chunks of encrypted information. The "chain" is the public database in which the blocks are housed and related to each other.
Each block on the blockchain contains a particular code that differentiates it from the other blocks that exist. The unique code is known as a hash. The blocks of data that are added to blockchains are added chronologically. The new block is created immediately after the previous block has been created, which also has its own unique hash.
2 What is the purpose of cryptocurrency? (4 reasons you need to take note of it)
The ledger, or database of blocks in the chain is simultaniously distributed around the world spread among thousands, or in Ethereum as well as Bitcoin's instance, thousands of computer systems. It is an easy description of the concept of cryptocurrency.
If someone were to forge just one block of data that was on the blockchain. If so the person must manipulate every block of data from a date in the past and update all the computers holding copies from the blockchain's blockchain.
It is theoretically feasible, however, the sheer amount of energy and the amount of money required to carry out this successfully renders it almost impractical.
3. Cryptocurrency Transactions Are (Mostly) Confidential
In the case of traditional currency issued by governments the ability to privately transact or make payments in person using physical cash.
Paper, metal, cloth as well as plastic currency makes just a fraction of the total amount of money made up of fiat in circulation. Large withdrawals of physical cash are quickly flagged and reviewed by a central authority , such as authorities and regulators of the financial system.
Note : Monitoring large cash transactions is a good idea. This helps ensure the validity of the currency as well as deterring illegal activities like laundering money.
Different from other currencies, cryptocurrency has its own unique characteristics. It relies on mathematically sound calculations for tracking the exchange between two individuals or businesses. This occurs mostly anonymously. While the ledger , also known as a list of transactions is publicly viewable worldwide, the parties that exchange crypto are much more private. By definiti on, cryptocurrencies are held digitally in digital wallets. The wallet's owner is the bearer of the key private to the wallet. It is used to exchange digital currency from mostly anonymous wallets owned by the users.
Another Note The fact is that although cryptocurrency is designed to be anonymous, advanced forensics can uncover wallet holders' identities. Some cryptocurrency projects such as Monero are designed to be indestructible to the discovery of identities.
A few companies like Titan Bitcoin offer premium-quality, physical coins minted with cryptocurrency addresses and verifiable values stored on the blockchain. This is an interesting idea for collectors, enthusiasts, and even for gifts. The concept brings digital cryptocurrency to life.
4. Cryptocurrency Security Grows Through Time & Value
In the past, we discussed the fact that a "hack" or "manipulation" would require an enormous amount of money and power to the point that it could be a worthless endeavor. For more details, hackers will need to be in control of over fifty percent of the computers making up"consensus" networks "consensus" network.
The consensus network simply every computer that has copies of the blockchain which is also called a distributed ledger. If you are looking for more established cryptocurrency, such as Bitcoin or Ethereum, the cryptocurrency networks are massive enough that a hack undertaking is mostly impossible.
In the early days of cryptocurrency, it was easy to attain the majority control, as the cryptocurrency network was smaller.
It's a crucial fact to keep in mind for investors and customers of cryptocurrencies in the newer stage whose networks haven't grown to something of a significant size. A smaller network will be the more vulnerable it is to hacking.
One example that is almost happened to Bitcoin at the time of its inception A group dubbed BitFury put together a huge number of computers for "mining."
"What is crypto mining?
Mining is the procedure by the process of verifying cryptocurrency transactions and block names are assigned their hashes. This process requires plenty of computational power. Users lending their computers to the cryptocurrency network of authenticators are rewarded (through transactions fees) that are paid out in the currency they're in support of.
BitFury created a verification or mining network. The network became lucrative as the value of Bitcoin increased. However, by 2014 they had just reached 50 percent of the total strength of the network.
Although hacking and manipulating the blockchain was not their goal They decided to restrict their impact on the Bitcoin network. They pledged not over 40 percent of the network's overall strength. The reason they did this was to secure the value of Bitcoin as those who use it might fear a 51% attack from an operator.
If the price of Bitcoin fell, the profits of BitFury would have been adversely affected if they weren't wiped completely. Balance between potential earnings and network power is another kind of security for blockchain. Insufficient network power could lead to a decrease in income and instability of the currency.
So, What is Crypto's Point?
Imagine you need to transfer funds to a friend online to their bank account. There are many ways in which this could a transaction can go wrong. Including:
- The financial institution can experience a technical error such as the machines malfunctioning, or the systems being inaccessible
- The account you have could be compromised, for instance the possibility of identity theft or refusal of access to
- Your friend's or account might have exceeded the limit.
Each of these scenarios is possible due to a single source of failure: the financial institution.
And that is why cryptocurrency was invented as the future of money!
Now, picture the same scenario for two users using a bitcoin application or another cryptocurrency. The alert appears asking the user if they are certain you're willing to transfer bitcoins. If you agree, the transaction is processed in a matter of minutes.
The system verifies the identity of the user and determines if you've got enough funds available to make the transaction. Following that, the cash is transferred to your friends' wallet. The transaction is much more smooth since it's quick and free of technical glitches or procedural steps involved with banking.
The purpose of cryptocurrency is to get rid of any issues associated in traditional banking. There are no limits in the amount of money you could move with bitcoin. Bitcoin accounts can be hacked almost as you're not dealing with an institution that is a financial institution , and there's no central base to fail.
What issue can Cryptocurrency Solve?
Making contact working with Western Union and other international payment companies is difficult, complicated and time-consuming. Making the same transfer with bitcoin transaction is easy and quick once users are familiar with the procedure.
One reason that makes cryptocurrency valuable is that it is only one-to-one transaction, taking place on a peer-to-peer networking system that eliminates the middleman, considerably reducing charges for transactions.
Fiat currencies are subject to many risks and restrictions. For instance, banks and other similar institutions are vulnerable to the boom and bust cycles throughout the world economy. Additionally, in certain situations, this could lead to the destruction of banks, and this have occurred during the past.
To the contrary cryptocurrency is independent since its value isn't tied with any policies or policies of the government. That means that as a cryptocurrency owner, you have the complete charge of your finances.
The robust encryption employed throughout the blockchain network are a powerful safeguard against account tampering and fraud.
Also, as an investment, Bitcoin's value rises by 200% annually on average. There is nothing that can beat the value of bitcoin. Not even stocks, gold, real estate, or even gold!
However, there is a few issues with crypto.
The issue of decentralization has been argued as a "false decentralization." A large enough group of people verifying blockchain transactions does form a quasi-centralized entity. Those people are the miners, who validate each block on the public ledger. They also assign the blocks their unique codes or hashes.
The argument goes directly to the 51% major problem that plagues newer cryptocurrency but will become less than a matter of fact.
Another issue that has been put forth is that the benefits of cryptocurrency either are not realistic or more efficient than traditional fiat currency.
An electronic transfer of funds in exchange for real money can happen in just minutes. However, many of the initial cryptocurrency projects could take up to a few hours.
Some of the older crypto-related projects require large amounts of computational energy, which results in high electric consumption. The opposition says that it's a poor use of resources on earth.
• Work around the weaknesses in transaction times and energy use as add-ons to the established cryptos and new projects that do not contain the identified inefficiencies.
It is interesting to note that the cryptocurrency industry isn't a currency due to its price volatility. The money must be an excellent store of value.
Certain vendors or merchants may offer purchases for products or services in crypto. They will need to alter the actual price they charge in tandem with the actual value of any cryptocurrency it is that is being used.
The idea of any currency is that it be a stable and reliable value. As adoption grows , the price should become more stable. Some cryptocurrencies are pegged to the value of a fiat currency like TrustTokens. Other projects are one-for-one representations of assets like gold and Tezos.
Marko from the WhiteBoard Finance YouTube channel does an excellent job comparing Bitcoin, gold, and traditional fiat currency in this unbias and objective video (6m41s@2x).
It allows users to perform electronic transfer without the danger of a single person having too much control over the financial system.
The merits of cryptocurrencies remain to be discovered in the early times. Early adopters and enthusiasts are expected to keep to sing the praises of cryptocurrency. The experts will continue to measure this financial instrument against established currencies and real cash. Consumers must determine when's the right opportunity to evaluate how cryptocurrency integrates into their lives.
As blockchain technology grows in sophistication and useful blockchains surface into the mainstream and mainstream, the need for cryptocurrency and its place in your finance toolbox will be inevitably evident.
Financial Disclaimer: This material is meant to be educational only and is not suitable as financial advice. These opinions and assertions are those of the author. They are not any views or opinions of DataOverh. aulers, or the owner. Data Overhaulers is not a company owned or operated by any ICOs, blockchain companies, or blockchain startups which advertise through our platform. Investors are advised to conduct due diligence and talk to an accredited financial advisor prior to making any investment in cryptocurrency, blockchain startup, or cryptocurrencies. Please be advised that your investments are at your own risk and any losses you may incur will be your responsibility.