Cryptocurrency, What is It Exactly?
Earlier this year, the Indonesian government legalized cryptocurrency trade. Since then, this digital currency has been the talk of the town. Many are now seeing it as an investment opportunity that can make lots of money, but what is it exactly?
Cryptocurrency is a digital currency system where cryptography is utilized to generate and distribute. It is based on blockchain technology which allows it to be decentralized from the orthodox currency system. The executed transactions are stored in the chain block in chronological order so that the record can be dynamically programmed on each coin. Since cryptocurrency only exists digitally, each coin’s records are informed across the network to avoid any double-spending of the coin.
The history of cryptocurrency starts when David Chaum developed a cryptographic system called eCash and DigiCash to ensure that economic transactions are confidential. However, the term cryptocurrency appeared in 1998 when Wei Dai wanted to develop a payment system that utilizes cryptography. When the financial crisis hit in 2008, the first cryptocurrency emerged. In 2009, Satoshi Nakamoto created the first cryptocurrency, Bitcoin. His motivation is to create an international and decentralized payment system. The system he created relies on cryptographic proofs instead of trust, dismissing the role of third parties like banks. Bitcoin’s start has led to many other cryptocurrencies to be created. The list includes Ethereum, Litecoin, Cardano, Ripple and many others.
Through an economic point of view, cryptocurrency is very ambiguous and unpredictable. The fundamental value is still a subject of debate. The value is strongly related to the herding behavior where reverse dispositions take place during price surges and positive dispositions during price drops. The prices highly depend on the supply and demand of the market and the community, such as users, miners, and developers.
General public has been showing much interest in cryptocurrencies lately, with a rapidly growing market capitalization of $2.28 trillion as of 12 May 2021. Mining currencies has become a trend, and many people start trading or investing in these currencies through easy-to-use mobile trading applications. They see cryptocurrencies as a good profit-maker, when it is currently still very speculative.
Cryptocurrency has become one of the most favored current trends. The high profit return that it seemed to bring has attracted many to join the bandwagon despite its vulnerability and instability. It’s best to keep in mind that as a means of investment, cryptocurrency poses high risk with an unpredictable future. So don’t be pressured — stay on your toes to use them to their full potential!
References:
Giudici, G., Milne, A., & Vinogradov, D. (2019). Cryptocurrencies: market analysis and perspectives. Journal of Industrial and Business Economics, 47(1), 1–18. https://doi.org/10.1007/s40812-019-00138-6
Global Cryptocurrency Market Charts. CoinMarketCap. (n.d.). https://coinmarketcap.com/charts/.
Haryanto, S., Subroto, A., & Ulpah, M. (2019). Disposition effect and herding behavior in the cryptocurrency market. Journal of Industrial and Business Economics, 47(1), 115–132. https://doi.org/10.1007/s40812-019-00130-0
Mukhopadhyay, U., Skjellum, A., Hambolu, O., Oakley, J., Yu, L., & Brooks, R. (2016). A brief survey of Cryptocurrency systems. 2016 14th Annual Conference on Privacy, Security and Trust (PST). https://doi.org/10.1109/pst.2016.7906988
