Cryptocurrencies are digital or virtual currencies but differ to your online bank balance significantly. Some of the key differences are that there is no physical representation of cryptocurrencies unlike fiat currency (normal money). And there is no centralised authority acting as a governing body, verifying transactions, or controlling the database.
Cryptocurrencies are secured by cryptography and all transactions are recorded on a digital ledger called the Blockchain which is a decentralised system. Cryptocurrency transactions are verified autonomously and stored permanently. No fraudulent transactions can be made or stored on the Blockchain. In essence this means there is no longer a need for intermediaries with centralised control like banks, PayPal and other payment gateways.
The Purpose Of Cryptocurrencies
Cryptocurrencies allow for individuals to have absolute control over their personal finances. Unfortunately, the facts are that within the current financial system individuals have limited control over their own savings. This is because their hard-earned money can be frozen, seized or deducted without their authority or prior knowledge and can even be double taxed through certain purchases or inheritance tax. Whilst also susceptible to being hacked by fraudsters, system failures, human error, government regulation, inflation, bank runs and other adverse possibilities. Ironically to operate withing this flawed system where control and financial determination is essentially surrendered is also very expensive.
Crypto currencies have the potential to disrupt the whole financial and economic sector and to redistribute the power associated with financial control.
Let’s take a further look at the benefits of this financial innovation, cryptocurrencies can be stored in a crypto wallet which is essentially a bank account with a massive difference. Complete control. You can deposit, store, manage and transfer currency and digital assets whilst no one else can access, seize, or freeze what’s yours. Transactions can be completed directly from wallet to wallet efficiently with potentially lower costs that traditional transfers.
What are Private And Public Keys
All cryptocurrency wallets have private and public keys, the private key should be always secured and should never be shared, whereas the public key acts as address, allowing those who have it to send you cryptocurrency and other digital assets.
How did Cryptocurrency Come Into Existence
The most popular cryptocurrencies come into existence through mining, a process where computer hardware is used to solved mathematical equations/puzzles, authenticate transactions then encrypt and verify a new block on the Blockchain. Anyone can purchase the necessary hardware and join the decentralised network. To incentivise people to join the network and strengthen the system the computers chosen at random to solve the equation/puzzle are rewarded with some of the cryptocurrency they are mining.
The Future Of Cryptocurrencies
Cryptocurrencies undoubtedly have an important part to play in our future economy. In addition to the benefits mentioned earlier there are others like smart contracts that are beyond the scope of this article but warrant further research.
10 Easily Digestible Bullet Points About Cryptocurrencies
A more self-explanatory name for cryptocurrencies is “digital money” which is both produced and secured using cryptology.
Cryptocurrency transactions are verified using existing Blockchain data for reference. The newly verified data is added to the Blockchain.
Computers operated independently and located all over the world verifying new data. This is called mining and is how new currency is created.
Anyone can mine cryptocurrency.
The two most popular cryptocurrencies are Bitcoin and Ethereum.
The value of cryptocurrencies is essentially determined by demand.
Cryptocurrencies are stored in a crypto wallet.
The uses and usage of cryptocurrencies is expanding daily.
Cryptocurrencies are not currently susceptible to government regulations, seizures, and unauthorised costs.
Cryptocurrencies can have tremendous speed, anonymity and other benefits that paper money cannot offer.