The Abstract World of Cryptocurrency
For as long as we can remember, currency has existed as a fair medium of exchange that aims to benefit both sides, with a universally accepted value. The Barter system, one of the first methods of transaction, was the exchange of goods and services for other goods and services, without the use of a medium of exchange. As the world progressed so did the means of transaction through the introduction of a medium exchange, coins, in Europe. What started off as coins went on to become paper money, a medium of exchange that is accepted universally ( the concept of paper money was introduced by the Chinese in 770 B.C. ). As the digital era rolled around, there has been a new addition to the financial system: cryptocurrency. Introduced in 2009, cryptocurrency has changed the way currency as we know it works.
Based on blockchain technology, cryptocurrency is an internet-based medium of exchange which uses cryptographic functions to conduct transactions. Blockchain technology, or blockchain, is a growing list of blocks linked together by cryptography; each block contains the cryptographic number of the previous block ,which is an index for a larger number, a timestamp and transaction data. If you’re not tech savvy, in blockchain a user requests a transaction, which is then transmitted to a network where the transaction is validated; if invalid, the transaction is kicked out. The valid transaction is added to the current “block” of transactions and this block is then “chained” to the older block of transactions, and finally the transaction is confirmed. This entire process is protected through cryptography, a method of protecting information through the use of codes, so that the information can only be accessed by those whom it is intended for. A major advantage that cryptography provides is that it eliminates the requirement of a central authority to enforce rules, thus removing central authority from database structures. The blockchain technology was invented in 2008 to serve as the public transaction ledger of the cryptocurrency, Bitcoin.
Being a currency, transactions of Bitcoin would have to be verified before being accepted and added to the public transaction ledger. Mining is the process in which transactions from various forms of cryptocurrency are verified and added to the blockchain digital ledger. Mining is no simple task as it involves the authentication of information followed by updating the information into the blockchain, all done by solving complex mathematical problems. As Bitcoin is a public transaction ledger, mining is open source and those who take part in the process are known as miners or in this case Bitcoin miners. Although mining is open source(i.e. It is open to the public and can be solved by anyone) Bitcoin miners do get paid if they are able to authorize a transaction by being rewarded with a small amount of Bitcoin. Keep in mind, Bitcoin is not the only cryptocurrency out there and mining is a common validation process among all, giving cryptocurrency miners as their title.
Like any new technology, there are always advantages and drawbacks. One key advantage of cryptocurrency is that inflation is not a concern. When any cryptocurrency is created, there is a set total assigned to it. For example, Bitcoin has a capped amount of 21 million. Once that total is hit, no more bitcoins can be mined. With a specified amount, it will result in an increase in demand. Therefore, the increased demand will cause the price of cryptocurrencies to increase and prevent inflation. Another key advantage is that cryptocurrency is able to be transferred really fast. Unlike traditional currency, it barely takes time to process and there are not many barriers to cross. There are quite a few drawbacks associated with cryptocurrency. One big drawback is that it can be used for a lot of illegal activity. Although the transactions are stored in a public ledger, the use of such currencies are anonymous. Even though there is black money in physical currency, it is easier to get away with illegal activities such as money laundering using cryptocurrency. No one is able to track where the money is going and how it is being used. Another huge disadvantage is that accounts can be hacked. With all the information being online, it can be pretty easy for hackers to steal accounts and run away with a lot of money. In the past years, there have been a lot of data breaches that have resulted in millions of dollars of stolen cryptocurrency. Although security is continuously getting better, the possibility of getting hacked is never zero.
Ever since its inception in 2009, cryptocurrency has been such an interesting piece of technology. Although its capabilities are huge in evolving our society to the next level, there are many vulnerabilities that have kept it from becoming the norm in every society world wide. As the technology continues to progress, cryptocurrency may be able to become the next frontier.
