To be very honest, I personally wasn’t aware of cryptocurrency before I set out to write this piece. So my understanding of it comes from a very layman perspective, which might be of some help for some of you out there reading this.
So what really is cryptocurrency? Firstly, it is a medium of transaction between precisely two parties. I say “precisely” in a very intended meaning in the sense that cryptocurrency does not involve, unlike traditional forms of currency, a centralised authority that approves the transaction. You might think of this as the chip system in a casino and you wouldn’t be far off from the concept.
You might ask, “what is the validity of this currency then?” Well, even in a token system you would need actual real money to buy the tokens. Naturally, here too one needs money to buy cryptocurrency like bitcoin (which is the most popular cryptocurrency in the world today).
So, how does a decentralised form of currency work? It requires computers (surprise, surprise). Lots of them and powerful ones too. The transactions get recorded in these supercomputers and there is no one central node here.
This takes us to the appeal of cryptocurrency. Why is it considered so lucrative? The security, of course. Because there is no centralised authority that regulates and records the transaction, cryptocurrency’s blockchain technology is suited for those who want to complete a secure transfer. But this has its downsides as well. It has been seen in real life that kidnappers demand ransom to be paid in cryptocurrency so that their identity remains unknown.
The removal of central banks from the equation of transaction means that this mode of currency does not see common trends like value of money going down due to inflation. In fact, people often buy cryptocurrency in the anticipation that their value would only go up due to their finite number in the cyber world.
New coins or cryptomoney are mined by powerful supercomputers that solve complex algorithmic problems. It is almost akin to how gold is mined by people digging deep in the ground and getting rewarded for their efforts.
One real problem with cryptocurrency as transactional device is its price instability. It is widely regarded that the value of cryptocurrency will shoot up in the near future. But if this is so, why would anyone want to spend a bitcoin or other cryptocurrencies? Wouldn’t they like to wait for that time when they could profit by quite simply getting more value for their crypto money? This is what stops cryptocurrency from being a ubiquitous form of transaction. Well, at least for today’s times. The future may well hold different possibilities and realities.