Even if you have never made a transaction using a cryptocurrency before, it’s impossible to completely avoid the conversation surrounding it.

With 106 million people around the world using cryptocurrency exchanges, this $370 billion industry is only getting started.

The first cryptocurrency, Bitcoin, was launched in 2009 as an alternative to the traditional fiat currencies.

Invented by an anonymous person or a group of individuals who go by the pseudonym Satoshi Nakamoto, Bitcoin aimed to solve all the shortcomings associated with traditional currency, starting with capital decentralization.

Since its launch, many people have used the open-source Bitcoin code to make alternative coins of their own. As of March 2022, there are over 18,000 cryptocurrencies in existence.

These statistics alone are enough to prove that the cryptocurrency industry is only expanding with no downfall to anticipate anywhere in the near future.

But why are people so interested in this digital currency rather than sticking to the age-old, tried, and tested methods of exchanging and investing money?

The straightforward answer is the boom in online technology, but there is a set of very unique and attractive characteristics that make cryptocurrency an effective alternative to the standard money.

But to comprehend these characteristics, first, we have to understand what a cryptocurrency actually is.

What is a Cryptocurrency?

Even if you are completely unaware of cryptocurrencies, you must know about the one that started it all – Bitcoin. You may also have heard the questions where can i buy bitcoin, what is today’s rate of Bitcoin, etc. 

So, let’s start with that.

Bitcoin, and all the cryptocurrencies in general, are cryptographically secured digital currencies that can be transferred on a peer-to-peer network.

It does not rely on banks to provide security or record-keeping, rather, a record of all cryptocurrency transactions can be found on a public immutable ledger for the ultimate transparency.

Now that you know what a cryptocurrency is, here are the characteristics that make it different from traditional currencies.

1. Decentralized

The most unique characteristic that differentiates a cryptocurrency from regular money is decentralization. 

But what does that exactly mean?

All the currencies that came before crypto revolved around a central authority that they had to trust to partake in the transactions.

A central authority encourages the concept of monopoly. Also, if that central authority crashes due to any unforeseen reason, the whole system disintegrates.

In case of cryptocurrencies, all the transactions are recorded in a distributed and decentralized public ledger, known as Blockchain.

Blockchains are politically decentralized (no one controls them) and architecturally decentralized (no infrastructural central point of failure) but they are logically centralized (there is one commonly agreed state and the system behaves like a single computer)” – Vitalik Buterin

Everyone on the peer-to-peer network has a copy of the ledger, so there is no need to trust any other person or entity on the network for a secure transaction. You can simply go ahead and verify the transaction against the copy of the ledger that you already have.

This encourages an environment of transparency and equality that is currently lacking in the traditional means of transaction.

The world is fast moving toward digitalization and peer-to-peer networks after its encounters with debilitating recessions that were courtesy of a centrally-controlled financial system. 

Crypto has several other attractive characteristics but decentralization alone is powerful enough to make it stay for years to come.

2. Perpetual and Uneditable

We have already discussed blockchain, a decentralized database that records all cryptocurrency transactions. Let’s discuss how it makes cryptocurrency perpetual and uneditable.

We trust our banks to manage and record our transactions. We also trust our banks to transfer our funds to the beneficiaries we choose.

Whenever we want to verify our transactions, we check the records maintained by the banks, and we have to automatically assume that those are devoid of any error.

This is what is meant by trust in a central authority. It is also a feature that you will not find in cryptocurrency as it works on the principles of decentralization.

So how do cryptocurrencies and blockchain ensure credibility and transparency? 

They do so through the measures listed below:

  • Cryptocurrency is a cryptographically secured currency (hence the name). That is why, once a transaction is done, and recorded on the decentralized database, it is almost impossible to rewrite the transaction history.
  • To move funds, the owner has to have a private key made up of a series of random letters and numbers. It is impossible to move funds without the said key.
  • For ultimate transparency, all transaction records are stored on the blockchain. It is a type of data structure that records data in the form of blocks and links it to other unique data blocks through a chain. Once a block is made, it is uneditable.

To summarize, cryptocurrency uses cryptography to secure payments, and then the records are made public and uneditable, completely eliminating the need for a trusted third party.

3. Security

As mentioned before, the world is fast approaching full digitalization. From education to finance, every sector is going online. For some companies, the move has been easier to make than others.

When we talk of money, the shift to online transactions must be made with considerable and impenetrable security.

When we talk about a novel alternative to standard transaction procedures, such as the one provided by the cryptocurrencies, the security has to be foolproof – far more efficient than the one already in use for traditional money.

Without effective security measures in place, no one will ever use a relatively recent means of currency exchange.

Cryptocurrency ensures security through private keys. Private keys are used to identify digital wallets in which cryptocurrencies are kept.

Like all important pin codes and passwords, it is extremely crucial to keep your private key secured for the safety of your digital assets.

According to an estimate, almost 20% of all Bitcoin currently in circulation, worth billions of dollars, is stored in digital wallets that users cannot access.

Final Thoughts

Cryptocurrency is a revolutionary step toward the advancement of currency and transaction systems, as we know them. Like all things new and disruptive, cryptocurrencies have a long ways still to go before they are widely accepted and stabilized. It is still a lot more volatile than other means of investment and comes with a steep learning curve. But as the data suggests, more and more people are looking into it, trying to learn it, or have already started using it to be a part of a better, decentralized community that works on a peer-to-peer level, offering the ultimate transparency.

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