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- 1 Cryptocurrency will soon become a major means of exchange in most countries.
- 2 For potential users of cryptocurrency, it is essential to understand the nature of the underlying technology.
- 3 The individual and businesses can adapt this technology better when they know it wholly.
The 21st century has seen some groundbreaking innovations and crypto is one of them. This decentralized solution gives people an alternative way of using their money. It established a decentralized way of storing information and ended the role of any central governance.
It makes individuals the sole owner of their money. Though it has been around for more than a decade, many still don’t understand it very well. So, let’s dig into it and explore its wonderful aspects.
A Simple Definition of Cryptocurrency
Cryptocurrency is a digital form of money that does not require any centralized body for governance. It introduces people to a unique distributed ledger that shares ownership with everyone rather than a few. To own and use cryptos, one needs to have a cryptocurrency wallet as well. They buy and sell these digital assets with the help of a crypto exchange.
Cryptocurrencies are fungible which makes their value the same even if they’re sold or bought. However, one can come across non-fungible tokens that defy this particular rule. Cryptos are not run by the government but they are taxable. Furthermore, in the next couple of years, Central Bank Digital Currency (CBDC) will hit the markets. Unlike the original cryptos, these assets will be centralized.
Thus, let’s dig into the real thing and see how blockchain-run crypto works.
Creation and Working of Crypto
The very first and the only cryptocurrency ever created is Bitcoin. One can see so many cryptos today including Ethereum, Ripple, Monero, etc. However, the only crypto that is created with a mining process is Bitcoin. In the mining process, coders better known as miners solve mathematical equations to create new cryptos. This particular mechanism is called the Proof-of-Work consensus mechanism.
The other cryptos like Ethereum are created using a Proof-of-Stake consensus mechanism. In this system, one doesn’t need to solve equations. They need to stake coins and create new ones by validating transactions. The mining process requires specific hardware which is quite costly. It also consumes a lot of energy and makes it an expensive venture.
On the other hand, creating coins with a PoS mechanism is quite cost-effective. Historically, both the consensus mechanism have proven their worth. They both have pros and cons along with lucrative aspects.
Why Should One Opt For Cryptocurrency Over Fiat?
Cryptocurrency has some notable advantages that are hard to ignore. That’s why, its demand is growing by leaps and bounds.
Favors Transparency: Handled by a group, the blockchain network has a much higher level of transparency than centralized money.
Maintains Anonymity: The distributed ledger offers unmatched anonymity when it comes to keeping the details inaccessible to third parties.
Makes Transactions Cheaper: The crypto users don’t have to deal with intermediaries for executing transactions. It makes the transactions way cheaper and faster.
Democratic in Nature: Cryptocurrency challenges the hegemony of powerful organizations and governments. It establishes a fair system where everyone has equal rights to information.
Cryptocurrency is changing and empowering the world. It may never uproot the centralized system but becomes a potential alternate for it. Thus, learning about it and investing in it are prudent decisions.
Mr. Pratik chadhokar is an Indian Forex, Cryptocurrencies and Financial Market Advisor and analyst with a background in IT and Financial market Strategist. He specialises in market strategies and technical analysis and has spent over a year as a financial markets contributor and observer. He possesses strong technical analytical skills and is well known for his entertaining and informative analysis of the Financial markets.
