All about Cryptocurrency — Pro, Cons and All Types along with Bitcoin
Cryptocurrency — A Better Understanding
Cryptocurrency = Cryptography + Currency
The term “Currency” is well-read and familiar, hence we’ll focus on the term “Cryptography”. In layman language, consider a scenario where the president of two different countries want to exchange a highly confidential message. No third person should be able to know the message. The presidents thought of a technique where the text message they send is only understandable by them. Even if a third person managed to gaze, he/she won’t be able to interpret the message. Both the presidents agreed upon a secret code using which the message can be encrypted while sending and decrypted at the receiving end. Thus, without knowing secret code, no external person can figure out the content of the message. As a consequence, a secure conversation took place without the intervention of any external entity or mediator.
From this, cryptography can be defined as “Conversion of plain text into cipher text using encryption while sending and conversion from cipher text to plain text using decryption while receiving”. You are now literate with the term “Cryptography”.
Now, let’s get some insight on “Cryptocurrency”. With the concept of cryptography, you might have gained vision that cryptocurrency is something where the transaction takes place directly between two entities without the interference of any external entity. Here, external entity can be referred to as bank, any financial institution or government.
Cryptocurrency is a virtual currency and subset of digital currency. It works on the principle of peer-to-peer i.e. transaction occurs straight forward between two nodes of a network without the intervention of a server. The main fact of focus is the decentralized control which means this currency is not governed by any single authority. The value of this currency is determined by its demand and market trends. It does not have any physical form, all generated and transferred through computer code making it uncrackable.
Cryptocurrency — Structure and Usage
After understanding the term “Cryptocurrency”, let’s develop a perception on how it is generated and how it is utilized as an alternative to existing digital currency.
Cryptocurrency is generated through a process called “mining”. To gain knowledge about mining, we have to first go through the procedure of “block chain”. Transactions are carried out between two individuals/organization having “cryptocurrency wallets” by matching up public addresses which relate back to user-held private keys. Transactions made are recorded on a public ledger of transactions called a “blockchain.”
The transaction amounts are public, identity of sender is encrypted. When someone sends or receives cryptocurrency, when they send from one wallet to another wallet using a set of private and public keys, that transaction is queued up to be added to the ledger. Many transactions are added to a ledger at once. These “blocks” of transactions are added sequentially.
That is why the ledger and the technology behind it is called “block chain”. It is a “chain” of “blocks” of transactions. When a peer-to-peer cryptocurrency transaction is made, that transaction is sent out to all users on the network. Specific types of users called miners then carries out the transaction (using software) which lets them add a “block” of transactions to the ledger. They receive newly mined cryptocurrency as reward. This is how cryptocurrency is generated.
From the launch of cryptocurrency since 2009, its usage has been evolved over time.
You can utilize cryptocurrency for the following purpose:
· Make payment — both online and offline at hotels, airports, jewellery store, app store and even some of the reputed IT giants and educational institutions.
· Use them as an investment opportunity.
· Take part in cryptocurrency mining.
Some Popular Cryptocurrency:
Apart from Bitcoin, there are many other cryptocurrencies developed and used all over the world.
Below are to name a few most popular currencies:
· Ethereum — Ether is a cryptocurrency whose blockchain is generated by the Ethereum platform.
· Ripple — Ripple connects banks, payment providers, digital asset exchanges and corporates via RippleNet to provide one frictionless experience to send money globally.
· NEM — NEM is the world’s first Smart Asset blockchain. NEM’s Smart Asset system allows anyone to completely customize how they use the NEM blockchain, with a robust set of features including domain-like namespaces and full on-blockchain Multi-signature control.
· Litecoin — Litecoin is a peer-to-peer cryptocurrency and open source software project released under the MIT/X11 license.
· IOTA — The Tangle ledger is able to settle transactions with zero fees so devices can trade exact amounts of resources on-demand, as well as store data from sensors and dataloggers securely and verified on the ledger.
· Monero — Monero is an open-source cryptocurrency created in April 2014 that focuses on privacy and decentralization that runs on Windows, macOS, Linux, Android, and FreeBSD.
Pros and Cons of Cryptocurrency
Pros:
· Fraud proof — It is the most secure method of payment and also irreversible. Transaction takes place only when verification is obtained from all the nodes on the network.
· Internationally accessible — With connectivity over internet, transaction using cryptocurrency can be made anytime, anywhere.
· Minimal transaction fees — When you make a transfer using bank/card, the minimum transaction fee charged is 2%. Whereas, with cryptocurrency, the transaction fee is as low as 0.3%.
· Limited threat from hackers — All the transactions ever carried out using cryptocurrency are recorded on an online ledger which possesses a data structure where data can be copied on all computers connected on the network.
Cons:
· Volatile — Since the cryptocurrency does not have a central repository, if any of the network computer crashes, its balance will wipe out if there is no back up. Also, as the rate is defined based on demand and market trend, it fluctuates over higher frequency.
· Should be fully aware of the technology — If the user misses out on any single point or performs any task lethargically, it will be difficult to manage the system and also bear some loss. To prevent yourself from this disadvantage, be sound with all the technological facts.
So, as you see, the number of pros outshines the number of cons, cryptocurrency is quite safe to use.
Thank you for reading this blog and hope it made sense to you.
Questions running through your mind? Don’t hesitate to type them down in the comment box. I’ll be happy to answer!