It has been more than a decade since Bitcoin was first created. This event marks the birth and beginning of a new era of finance. During this time, many things occurred. The Bitcoin price has risen several times and there were thousands of other cryptocurrency projects that followed. Many people became rich while others lost their entire savings. Cryptocurrency is now a popular topic of discussion in pop culture. The short version is that cryptocurrency has become a huge phenomenon and many people are now convinced of its value.
Digital currencies are everywhere, whether you love it or not. They are being used by a growing number of investors, average people, companies, and organizations. Governments are also considering including them in their financial systems.
For those who are passive observers of the crypto show, this new asset class is just background noise. Many people have never used digital currencies and never bothered to find out about their benefits or uses. They also didn’t bother to research the origins of this craze. You might be wondering what all the fuss is about and why so many people care so much.
This question is not easy to answer. To give you a clear picture of the crypto world and to prove that virtual currencies aren’t just a fanciful rumor, we need to examine their key characteristics and determine what makes them an attractive financial tool.
Cryptocurrency is on the rise
It all began in 2009 with Bitcoin, the first cryptocurrency. This was created to be a universal payment system and an alternative for fiat money. Bitcoin was the first to introduce digital currencies to the public. This is a type of virtual currency that can only be used online and uses cryptography to verify transactions.
Although people weren’t eager to support Satoshi Nakamoto, the projects were well received and gained momentum over the years. It wasn’t until 2017 that Bitcoin saw a dramatic rise in its price, which led to record highs. This was when it finally caught mainstream attention. Bitcoin was not the only cryptocurrency on the market at that time. People began to become interested in how they could buy crypto to add to their investment portfolios. Many people bought Bitcoin in the hope that it would continue its upward trend. Some others began using crypto for short-term transactions. The crypto market exploded quickly and the rest is history.
Decentralization
Decentralized nature is the main feature of cryptocurrency and what makes them different from traditional money. Cryptos, unlike fiat currency, are not issued or controlled by any central authority like a bank or government. They are run on a distributed ledger system called blockchain, which is not controlled or owned by anyone. This open-source platform allows transactions to be verified and secured by nodes (the network computers) using cryptographic technology. All participants can see the records but cannot alter them.
Transaction fees are lower than traditional money transfers because the third party is removed from the equation. Transactions are managed entirely by stakeholders. Every node within the network has a copy of all transactions that can be viewed by anyone. This means you don’t have to trust any other entity with your assets. This provides a greater level of transparency and security than fiat money.
Impermanence
Decentralization also has the characteristic of immutability. A blockchain is a collection of blocks that are linked in chronological order. Each block is a container for information that stores transaction data. It also contains a hash, which is a unique identifier for validated transactions and the hash from the previous block. After a block has been completed, it is linked to the next block, and so forth, creating a chain of information that is irreversible, and cannot be altered.
It would be impossible to alter the blockchain data due to the number of nodes involved in verification. This immutability is what makes crypto transactions reliable and trustworthy.
Privacy
Participants in crypto transactions do not need to be approved by a central authority. Therefore, they are not required to reveal their identities. This level of privacy is unmatched by any other asset class. Transactions can only be authenticated using a private key that is only available to the account owner. Anybody can send and receive money from anywhere in the world, without needing to go through a complicated identification process. They also have full anonymity. This will keep prying eyes away and reduce the chance of being hacked or stolen data.
All-inclusive
While financial services that are regulated work well for many people, they can push others to the margins of the financial system. Many people in developing countries don’t have access the basic banking services that allow them to send and receive money as the rest of their population. The unbanked can benefit from permissionless money transfers with cryptocurrencies. There is no need to have a bank account, or for any third party to manage the transfer. They only need a smart device with internet connectivity to conduct transactions.
You can see that crypto is more than a digital reinterpretation fiat money. It is a completely new, complex ecosystem that can solve many of the problems in the financial system. Cryptocurrencies will be around for the foreseeable future, so it is worth paying attention to their development.
