Currency is a medium of exchange issued by the government. Currency can be papers and coins. It is available in various forms such as hard money i.e. coins and soft money i.e. notes and also known as Fiat money. Every country has its own currency. For example, Indian Rupee, American Dollars, etc.
In 21st century, a new form of currency came into existence, called virtual currency and cryptocurrency. Cryptocurrency is a digital medium of exchange of money in which currency is encrypted with some digital codes to protect it from the use of unauthorized users. In this encryption keys are used to convert the currency into digital form and then decryption keys are used by the authorized user to decrypt the currency.
Features of cryptocurrency:
- Cryptocurrency is not controlled by a centralized authority.
- Cryptocurrency is generated by the use of public key and private key.
- There is no physical existence of cryptocurrency.
- Cryptocurrency can be transferred from one person to another with the help of public keys.
- The most popular cryptocurrency is Bitcoin.
- Cryptocurrency transactions are irreversible in nature.
- They are pseudonymous i.e. neither transactions nor accounts are related to real world.
How Cryptocurrency works?
Satoshi Nakamoto was the founder of the most popular cryptocurrency i.e. Bitcoin. He wanted to invent a peer to peer cash transfer system. So,He made this digital cash payment mechanism. The main aim of creating this type of currency was to provide a decentralized payment mechanism.
The cryptocurrency transactions involve a network of peers. It consists of a Blockchain in which the transaction has to be confirmed by the Miners. A confirmed transaction is added to the blockchain.
For this, every miner gets a coin for the confirmation of the transaction.
Cryptocurrency Mining: Mining is the most important step in cryptocurrency. Anybody can be a Miner but he has to invest some work of their computers to qualify for his task. So, this is a coin-based transaction. After every mining process the miner gets a coin added to his account. Bitcoins can only be created if miner solve a cryptographic puzzle.
Merits of cryptocurrency:
- Confidential transactions: the transactions done by digital medium is more secure than the transactions done in fiat currency. This is confidential because this is secured by encryption and decryption keys.
- Transaction fees: there is no transaction fees involved in cryptocurrency transaction because transaction is confirmed by miners and the coins are generated.
- Greater access to internet: all the transactions are done electronically so everyone can use this type of facility with the access of internet.
- Individual ownership: the basic feature of cryptocurrency is that it is not backed by assets and it is not controlled by a single authority. So, every individual can be a miner and generate his own coins in his digital wallet.
- Strong security: there is great security in case of cryptocurrency so less chances of fraud.
Demerits of cryptocurrency:
- Scalability issues: the problem of scalability is posed with cryptocurrency. Another the speed of transaction is also very important.
- Cybersecurity issues: the risk of hackers is also involved in cryptocurrency. Many issues have emerged in the transactions involved in digital payment.
- Regulations: the other drawback is that there are various regulations involved in the transactions of cryptocurrency.
Future of cryptocurrency: cryptocurrency is used as an alternative to conventional currencies. This is the need of an hour to develop such type of electronic platforms so that a network can be created to generate money.