Nowadays, you might have heard the word Cryptocurrency, but what is it, and how does it work? And how can we use this in business? Let's begin with understanding first what a cryptocurrency actually is. A cryptocurrency is essentially a virtual or digital currency designed to work as a medium of exchange. It uses cryptography for providing a secure environment, making it difficult to counterfeit.
Cryptography basically controls the creation of additional units of the currency. Thus unlike all other currencies which are created by governments or other financial institutions, cryptocurrencies are completely decentralised. No one controls them! The systems that do the job of generating new units and keeping track of transactions are known as a blockchain.
Blockchain
A blockchain is a continuously growing collection of records known as blocks that are linked and secured using cryptography. The hash pointer at the beginning of each block serves as a link to the previous block, as well as timestamp and transaction data. The application of cryptography makes the process of cryptocurrency creation extremely difficult. Mining is a process that creates a new cryptocurrency and adds it to the blockchain by resolving complex algorithms and verifying transactions. When a Cryptocurrency transaction is done, it is stored and recorded on a public ledger called a blockchain.
Each transaction gets added as another block to the existing blockchain, thus forming an interlinked chain of blocks. Anyone gets to view them, but no one can modify or delete the recorded data. This design makes cryptocurrencies practically immutable! So each time a transaction gets carried out, it is added to the ongoing blockchain as another block of data that keeps getting updated every time there is a new transaction.
So why are cryptocurrencies attractive? Well, for starters, these are easier to transfer than other currencies. You can spend cryptocurrencies online, send them to other people and use them for making payments at various stores. Since transactions are made directly between users without any middlemen or banks involved, the fees are also much lower. It eradicates the need to pay the hefty fees which you'll be charged for using credit cards or any other payment methods.
Anonymity
Another reason why cryptocurrencies are appealing is that they offer a high degree of anonymity and complete security of your digital transactions. This makes it extraordinarily hard for anyone to steal money from you or track the movement of funds. The only thing visible on a blockchain ledger is your public address, but not your personal identity or transaction details.
The decentralisation is yet another benefit of cryptocurrencies. Since no one controls them, this makes it extremely difficult to confiscate or freeze your digital assets, thus creating a sense of trust and security among cryptocurrency users. Also, there are no transaction limits imposed by the government or any other authority. You are free to send or spend your money any way you like. There is also no need for you to provide personal information in order to make a purchase. This makes cryptocurrencies the perfect option for people who intend to maintain their privacy.
Some downsides
However, cryptocurrencies are not without their downsides. They are extremely volatile in nature, and the prices of cryptocurrencies tend to rise or fall anytime, anywhere, depending on demand and supply. This makes them vulnerable to market forces at any given point in time. However, there is no denying that cryptocurrencies have revolutionised our economy by providing us with a new medium of digital transactions.
Their underlying blockchain technology has introduced us to a new paradigm in the world of transactions. Many people claim that Cryptocurrency is the future of trade and commerce, so you should definitely give it a try and see for yourself!