What is cryptocurrency? Things you must know about cryptocurrencies

Cryptocurrency is the novel form of digital currency which uses cryptographic techniques for simple, safe and speedy peer to peer transaction independently of any central authority.

There are over 900 cryptocurrencies available on the internet as on June 2017. Bitcoin was the first decentralized cryptocurrency that came into operation in 2009. It was discovered by a programmer Satoshi Nakamoto who proved that financial transactions can be verified using bitcoin’s blockchain database in the form of publicly distributed ledger and without the interference of any central bank. Bitcoin since then is regarded as mother of all other cryptocurrencies, whereas the derivatives of bitcoin system are named as altcoins. The fundamentals that rule the introduction and adoption of cryptocurrencies remains same for all.

Thing you must know about Cryptocurrencies

Limited Production

Crytocurrencies have predefined quantity of units that are ever produced. Crypocurrencies are developed through a software program where a code is setup before they are distributed to its users. This makes them rare in nature, a characteristic very similar to gold. Scarce nature of cryptocurrencies drive the price appreciation of these assets. The digital currency prices are governed by universal law of demand and supply, where increased acceptance along with fixed production will escalate cryptocurrency prices. For instance, bitcoin has appreciated from few cents in 2010 to over $2500 in 2017, due to its limited production of 21 million bitcoins only.

Reduction in the rate of generation

Crytocurrencies are produced at declining rate till they reach their predefined production. The rate of production is defined with time. For instance, each bitcoin block is mined every 10 mins. This rate sharply reduces by 50% every four years. This event is known as bitcoin halving, where the reward of institutions who verify bitcoin transactions reduces to half and continues till there is no new bitcoin generation.

 

Resistant to inflation

The definite production and fixed rate of generation makes cryptocurrency inflation resistant. The physical national currencies can be printed in excess based on several political, economic and social dynamics. This may lead to dilution in the inherent value of money leading to inflation. Additionally, instance of counterfeiting, illegal printing and unaccounted transaction makes inflation more intense. However, as bitcoins are very rare and its acceptance growing with each day, inflation is distant phenomenon to be seen. As most of the cryptocurrencies are based on public distributed database, there is hardly any chances of manipulation such as counterfeiting, etc.

 

Durable and ultra-safe

Cryptocurrency are also called as digital currency. They are digital tokens which are exchanged from one user’s wallet to another user’s wallet. The transactions between the users is encrypted making it highly safe. Digital currencies can be stored in online wallet or in physical form by protecting the private key assigned for each wallet. The stored digital currency can be protected for decades together.

Super-fast transaction with minimal transaction fee

The normal national or international transactions are cumbersome and costly. Any international money transfer may cost us over 10% of transaction fees with more than 24 hours for completion. However, digital currencies are the fastest and most cost-effective mode of money transfer. Bitcoins have found wide use in transmittance where individuals as well as institutions carry out international transactions in bitcoins. For instance, a person would be charged only few cents for international money transfer with transaction completion time of less than 10 mins.

Distributed consensus

Cryptocurrencies are not controlled by a central authority but smoothly functions with distributed consensus of thousands of people who are part of blockchain network called miners. The miners located across the globe take part in all network related amendments making the process truly democratic in nature.

38 thoughts on “What is cryptocurrency? Things you must know about cryptocurrencies”

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