What is Cryptocurrency?
➤ A digital asset designed to
work as a medium of exchange that uses crytography to secure its transactions,
to control the creation of additional units, and to verify the transfer of
assets.
➤ A type of digital currencies,
alternative currencies and virtual currencies.
➤ Cryptocurrency uses decentralized control as
opposed to centralized electronic money and central banking systems. The
decentralized control of each cryptocurrency works through a blockchain, which
is a public transaction database, functioning as a distributed ledger.
Before we are going deep through the contents below, let's clarify about the difference between
centralized control and decentralized control.
Centralized control :There is one single entity controlling the overall processing and all of the data are stored in its database. To illustrate, the Federal Reserve System, corporate boards or governments, is the one who can control the supply of currency by printing units of fiat money or demanding additions to digital banking ledgers.
Decentralized control :There is no central authority. In other words, the processing is run or occurred by every single unit, not just one entity.
A brief History of Cryptocurrency
In the 90's Tech Boom, there
have been many attempts to create a digital currency, such as, Beenz, Flooz,
and DigiCash emerging on the market but inevitably failing. The failure stemmed
from many different reasons, for example, fraud, financial problems. Notably,
all of those systems utilized a Trusted Third Party approach which means that
the companies behind them verified and facilitated the transactions.
However, in the early 2009, an anonymous programmer under an alias
'Satoshi Nakamoto' introduced Bitcoin—the first decentralized cryptocurrency.
It is an electronic cash system that uses a Peer-to-Peer network for file
sharing to prevent double-spending.
In the 90's Tech Boom, there have been many attempts to create a digital currency, such as, Beenz, Flooz, and DigiCash emerging on the market but inevitably failing. The failure stemmed from many different reasons, for example, fraud, financial problems. Notably, all of those systems utilized a Trusted Third Party approach which means that the companies behind them verified and facilitated the transactions.
Is Bitcoin a currency?
Bitcoin is an asset, not a currency because it is not a medium of
exchange and its value is unstable. Moreover, the Commodity Futures Trading
Commission(CFTC) in the United States officially designated bitcoin as a
commodity.
Getting
to know more about the characteristics of Medium of exchange.
A
medium of exchange is an intermediary or a financial instrument that is
worldwide used in commercial transactions as a measure and standard of value.
It means that everyone in the world will give you a staff to exchange to it.
Although cryptocurrencies are more used for payment in many places, there are not
global accepted for conducting transactions. Also, it is a bit hard for bitcoin
to compete with global currencies.
Moreover...
Bitcoin has unstable value and volatile price
because there is no standard way to evaluate the price because it depends on
its demand and supply
How does Bitcoin work?
What is the purpose of a distributed ledger and how does it compare to a bank?
A distributed ledger is a consensus of
replicated, shared, and synchronized digital data geographically spread across
multiple sites, countries, or institutions. There is no central administrator
or centralized data storage. Distributed ledgers such as blockchain are
exceedingly useful for financial transactions because they cut down on
operational inefficiencies (which ultimately save money). They also provide
greater security due to their decentralized nature, as well as the fact that
the ledgers are immutable.
What are the pros and the cons of using Bitcoin in a transaction?
Sources :
https://www.wsj.com/articles/bitfinex-to-spread-losses-from-cybertheft-among-all-users-1470559865
https://www.bloomberg.com/view/articles/2017-12-27/bitcoin-is-an-implausible-currency
https://en.wikipedia.org/wiki/Cryptocurrency
https://bitcoin.org/en/how-it-works
https://finance.yahoo.com/news/bitcoin-pros-cons-consumers-merchants-140041526.html
https://www.thebalance.com/is-bitcoin-a-commodity-4126544
https://blockgeeks.com/guides/what-is-cryptocurrency/
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