To first understand what cryptocurrency is we should first take a look at how we currently pay for everyday things. We do this with money that our government produces, known as Fiat currency, and distributes. This governing body goes ahead and says the currency has a certain value. They control what x amount of their dollars is worth in terms of other goods and services. Governing bodies have complete control over how much of the currency is made and what it is worth.
Cryptocurrency is not backed by a single governing body. The way that it works is as a cryptocurrency spreads its users agree upon its value. To put simply this is agreed upon the supply and demand of the coin. The more people that become involved the higher the value. Both the money in your wallet and cryptocurrency you may own hold value. The money (Fiat) in your wallet is backed by a governing body and you can physically hold it while cryptocurrency has an agreed upon value by its users and the coin can not be physically held.
Cryptocurrency is an encrypted, decentralized digital currency that can be transferred between people by transactions confirmed through ledgers known as mining. Cryptocurrency makes use of cryptography as a means of securing itself. Cryptography (also known as encryption), is a mechanism used for encoding the rules used within the cryptocurrency system. It is a measure of preventing tampering and equivocation; as well as encodes a mathematical protocol, in the creation of new currency units.
Advantages of cryptocurrency
There are many great advantages in adopting cryptocurrency, such as the elimination of third parties when acquiring new purchases and the absence of fees because the miners are compensated for confirming any transactions that take place on the network in place of lawyers and mediatory agents. In addition, individual’s cryptocurrencies are fraud free, in the sense that it cannot be duplicated or reversed arbitrarily by the sender; as is the case with credit card charge backs.
Employing cryptocurrency also provides a level of identity security unlike credit card transactions in which you pass access to your full credit line to merchants for transactions big or small. Credit cards function on a “pull” basis, where the merchant initiates the payment and pulls the designated transaction amount from your account. Cryptocurrency employs a “push” mechanism that allows the cryptocurrency holder to send exactly what they want to the recipient with no further information required.
With over 2 billion individuals across the globe having access to the internet and mobile phones and, at the same time no access to traditional exchanges, cryptocurrencies fill a void of financial accessibility and security never before known in places such as Africa and India.
Most importantly though cryptocurrencies are distributed across a decentralized peer to peer network of computers which jointly manages the database which records transactions. This decentralization of authority means no one central authority may corrupt or influence the outcome of the ecosystem and provides an immutable and flawless environment of free market trade.
For people who are willing to learn about cryptocurrency there is a great advantage in applying it in their daily lives. This also applies to businesses that can integrate it into their systems to make it easier for people to engage and transact, even if they do not have accounts with some of the institutions; it opens more avenues for them to make increased sales and attract a vast number of clients entering the space and preferring cryptocurrency as a preferred method of commerce.
There is no denying that cryptocurrency is changing the way we use money at the moment. Looking at the possibility of liquid digital currencies in the future; there can be guaranteed factors that will affect the financial sector; with cryptocurrency’s influence on the financial sector, it looks like it is set to continue for quite a while.