What is Cryptocurrency? Here’s What Crypto Enthusiasts Need To Know
The concept of cryptocurrency began in the 1980s, the idea emerged so that payments can be sent untraceable and in a manner that central governing authorities like banks can not be involved. In 1995, David Chaum, an American cryptographer implemented an anonymous cryptographic electronic currency called Digicash. It was the first type of electronic payment system powered by cryptography which required customers to use software to deposit or withdraw money from banks and required a distinctive set of encrypted keys before transferring money. In addition, Bit Gold, known as the precursor to Bitcoin, was developed in 1998 by Nick Szabo. This mandated users to have computers that are compatible with solving cryptographic algorithms, and those who successfully solve them get the rewards.
Therefore, by combining Szabo’s and Chaum’s concepts, then we have something that resembles Bitcoin. However, the Szabo concept was not able to solve the cryptographic puzzle of the double-spending problem without taking help from the central authorities. Thus, further working on the problem, Satoshi Nakamoto, came up with Bitcoin, a peer-to-peer digital payment option, that began the history of bitcoin and the emergence of digital crypto money.
Cryptocurrency – Meaning and Definition
Cryptocurrency, sometimes called digital crypto money, is a type of currency that exists in virtual form and is developed by using cryptographic algorithms to make the transactions secure. The whole concept of digital currencies is based on blockchain technology which provides them decentralized nature. Cryptocurrencies are not regulated by regulatory authorities or central bodies.
Cryptocurrencies are digital payment gateways that don’t depend on financial institutions particularly banks to authenticate transactions. It’s a Peer-to-Peer (P2P) blockchain system that allows online users to send or receive payments anywhere anytime. Instead of being fiat currency moving around and exchanged across the globe, digital crypto money truly exists as virtual entries to a blockchain ledger describing crypto transactions. Thus, when cryptocurrency transactions are being carried out they are recorded in the public ledger, whereas the coins themselves are stored in digital wallets. Cryptocurrencies have gained global attraction because they use rigid encryption to verify every transaction along with hiding the identity of users. This means advanced cryptographic algorithms are being involved in transmitting and storing digital currency information between decentralized ledgers and digital crypto wallets.
How does cryptocurrency work?
Cryptocurrencies work on distributed databases ( public ledgers) called blockchains, a place where the records of cryptocurrency transactions are held by the currency owners and updated on a daily basis. The cryptocurrency units are developed through a process known as cryptocurrency mining, in which powerful computers are used to solve the complex set of cryptographic puzzles and mathematical problems that software generates digital coins. In addition to this, the customers can also buy digital crypto coins from the exchanges or brokers, which they can store in their digital wallets and can then spend as per their desires.
If someone has digital currencies, they actually don’t own anything in physical form. What one owns are the private and public keys that allow them to transfer coins from one person to another without the involvement of third-party intermediaries. However, Bitcoin has been in the market since 2009, digital crypto money and blockchain applications are developing particularly in financial terms.
Crypto Coins vs Crypto Tokens – The Difference?
Digital crypto coins are considered the cryptocurrencies that have an independent blockchain ledger e.g Bitcoin. Coins are developed from scratch and the whole network is systematically designed to achieve the desired objective. For instance, Bitcoin has developed as censorship-resistant with the goal of storing the value, secure medium of exchange, and rigid financial policy. In addition to this, Ethereum is also a native cryptocurrency coin of smart contracts that are used to create decentralized blockchain applications and computer programs.
Whereas, crypto tokens are those that are created by using other cryptocurrency’s blockchain ledger. Making it clear, crypto tokens refers to how digital crypto money is going to dominate the future. The tokens represent the traceability and fungibility of assets that are created on the same blockchain. Furthermore, digital tokens are usually used for fundraising purposes, but can also be used as substitutes for other things as well. However, crypto tokens are developed, distributed, circulated, and sold through Initial Coin Offering ICO.
Are Cryptocurrencies Legal?
Fiat money is created as the medium of payments by central authorities or governments. For example, the US dollar bill is ruled by the Federal Reserve. Whereas, cryptocurrencies are not backed by any private or public entities. Thus, it’s quite challenging to make a case for cryptocurrency legal status in the different jurisdictions across the globe. However, it doesn’t matter as cryptocurrencies are largely functioning without the interference of existing financial infrastructure. The legality status of digital crypto money has become more significant for their usage in daily trading and transaction as in June 2019, the financial action task force (FATF) emerged with the travel rule which made it mandatory for the service providers to comply with the anti-money laundering regulation.
In December 20121, El Salvador became the first country that acknowledged Bitcoin as a legal tender for financial payments. However, cryptocurrency regulations vary jurisdiction-wise across the world. On another hand, Japan’s Payment Service Act also defines cryptocurrency as a legal asset. Under the law, the digital cryptocurrency exchange working in Japan is required to gather the customers’ personal information including financial details relating to the cryptocurrency transactions. Whereas, China with the aim of reducing financial crimes has banned cryptocurrencies as well as mining activities across the country. Digital cryptocurrencies are legalized in the European Member states. To secure the digital crypto industry AML derivatives and other standards are being developed. However, the European Commission also published the Markets in Crypto-Assets (MiCA) regulations that safeguard the exchange’s operations.
The Future of Cryptocurrency
Cryptocurrencies have emerged as an alternative payment gateway for fiat money as they can provide heaps of viable benefits that fiat money lacks. Thus, digital crypto money can also be considered money 2.0 – a new form of currency that is completely digitized with the potential of allowing users to make transactions robustly. Digital currencies can be utilized to buy products and services or even can be held as an investment plan, and can not be exploited by the central authorities as they don’t exist. However, the foundation of the cryptocurrencies is laid on the blockchain industry which provides anonymity that secures the transactions as well as identities, regardless of the government’s efforts to make them illegal or banned.
Furthermore, despite where you were born or live, cryptocurrencies provide equal opportunity as well as benefits. You can access your crypto coins/tokens as well as wallets through smart gadgets from anywhere anytime, without requiring bank accounts. In addition to this, digital crypto money will also provide an equal chance for everyone across the world to enhance their economic freedom.