A cryptocurrency can be defined as a decentralized form of digital currency in which encryption technologies are used for the generation of units of currency or the verification of funds transfer. For a layperson, it can be simplified as using digital files as money.
How does cryptocurrency work?
Cryptocurrency works on a technology known as blockchain that is a distributed ledger containing all the transactions. The word blockchain breaks into two terms i.e., block and chain. A block is a piece of information that contains all the relevant data regarding cryptocurrency transactions.
After the block is filled, it joins the already existing chain of blocks. Thus, the entire ledger is distributed in the form of a blockchain.
How does crypto mining work?
In the year 2009 when bitcoin came into existence, there were merely 21 million bitcoins. However, one had to mine them through a specific process. As of now, more than 18.5 million bitcoins have been mined.
Mining is the process of discovering new crypto units. Through this process, the miners find out new units which are added to the blockchain. It might sound easy but mining requires computers that are equipped with strong hardware and software. These computers shall be able to solve complex calculations in a fraction of seconds.
Advantages of Cryptocurrency
With the increasing popularity that cryptocurrency is gaining, it is wise to accept it as a part of our life as soon as possible. Just like regular currency, cryptocurrency also has both positives as well as negatives. Some pros that these digital currency offers are:
- Maximum levels of transparency:
As mentioned earlier, the blockchain is a distributed ledger. Therefore, the owners of bitcoin can access the same from anywhere at any point in time.
- Instant transactions: Since there is no intermediatory involved like banks etc., crypto transactions are much faster as compared to regular currency.
- Low transactional costs: The only two parties involved are the buyer and seller of cryptocurrency. Therefore one does not have to pay a hefty commission. Moreover, cryptocurrency is not yet taxable. Therefore, not only does it reduce the transaction cost, but it reduces the tax liability as well.
- Fewer chances of fraud: Cryptocurrencies are secured by cryptography. This technique makes it nearly impossible for someone to counterfeit the currency or use it twice.
●24-hour availability of all transaction records: Since the entire database is stored online, it becomes easy for the owners to access it anytime.
- Complete anonymity of transactions: Cryptocurrencies are digital and hidden in nature. Therefore, the owner of crypto does not hold it under his or her name. The transactions in a blockchain are secured using cryptography.
Disadvantages of Cryptocurrency
Cryptocurrencies have become quite popular recently. However, not everything about it is perfect. Let us now take a look at some disadvantages of cryptocurrency:
- Used for illegal activities:
The anonymous nature of cryptocurrency is a boon as well as a bane. Over time, it has been observed that cryptocurrencies are used for illegal activities on the internet because it is quite difficult to track their owners.
- Highly volatile nature:
Cryptocurrency markets are highly volatile in nature. This happens majorly because there is no regulatory authority. For instance, there is SEBI in India for the stock market. Due to the absence of a regulatory authority, the prices fluctuate a lot based on different factors, sometimes rumours as well.
Impact of Cryptocurrency on Different Industries
Below are some points highlighting how cryptocurrency has a positive impact on different industries and the global economy as a whole:
● It can help governments boost investments. They can become a perfect complement to the existing investments, and not a substitute for the current fiat. Moreover, the government’s tax revenue can increase by levying taxation rules on returns from these investments.
● The advancement in cryptocurrency has given a boost to the technology industry generating newer employment options in research fields.
● Blockchain technology facilitates the direct transfer of information without the use of intermediaries, thereby helping reduce the cases of theft and fraud worldwide. These transactions are locked by digital signatures and are impossible to forge.
● Since private digital currencies do not fall under the purview of the monetary policy, they could be used as a tool to control the inflationary pressure in the economy.
Private digital cryptocurrencies like Bitcoin are here to stay. These are a part of the global financial revolution. Moreover, big tech giants are already working their ways to grab this latest technology opportunity to boost their revenues.
Learn Crypto on Unluclass
If the terms like crypto and bitcoin excite you, we have something coming up that you might like. We are offering an online cryptocurrency course in which you will learn all about cryptocurrencies. Stay tuned for a crypto unluclass!