Digital currencies are currently being used more in the financial and technology sectors than it was before. It used to be that very few people would invest their money in cryptocurrencies; however, today even the highest ranking politicians debate on this topic. Be that as it may, what exactly is this cryptocurrency? How does it operate? And will it be beneficially or harmfully disposed; will they be good or bad?
What is Cryptocurrency?
Digital currencies protected by cryptography are called cryptocurrencies. Unlike the traditional fiat currencies, these are purely digital and decentralized in nature, meaning that there is no central authority issuing or controlling them as it does for paper money through banks or governments.In 2009, Bitcoin became the pioneer digital cash that caught the attention of many people after being unveiled to the public by an unknown individual called Satoshi Nakamoto. From there, several other forms of digital cash with unique properties and functionalities like Ethereum, Litecoin, Ripple among others followed suit.
How Does Cryptocurrency Work?
The reason that it is not possible for digital currencies to be counterfeited or duplicated like other forms of money is because every transaction of such kind is encrypted with a complex mathematical algorithm. This encryption is possible through the use of blockchain technology, a form of public record found on many different computers that assures safe transactions for users of any given kind on those linked together systems which make up said computer network.Financial sovereignty and privacy are among the advantages that users get from this technology. In other words, there is no one person or group that can control how money moves from one place to another within the system. More specifically, it prevents people’s funds from being taken or tampered with since they remain under their full control outside influences.
Why Use Cryptocurrency?
Cryptocurrencies attract people due to various reasons. Some of these reasons are:
1. Decentralization
We have already said that cryptocurrency is not controlled by any institution; therefore, it is safer and gives people more rights concerning their funds.
2. Fast and borderless transactions
International transactions in the past would require a lot of time as well as a substantial amount which could be measured in tonnes. Nevertheless, it is possible to use cryptocurrencies to make cheap payments across countries almost instantly today.
3. Lower transaction fees
When money is sent through normal online banking systems, there are usually high transaction costs charged by financial institutions. Business people find cryptocurrencies appealing because they help in reducing or doing away with such charges.
4. Potential for investment
Many individuals consider cryptocurrencies suitable for investment because they have high volatility and are affected by significant price changes.
5. Anonymity
Although there are digital currencies that provide total privacy, some have different degrees of privacy, and this is very attractive to people who want to keep their financial matters private.
What Does the Future Hold?
The future of cryptocurrency has been a hot debate with valid points from either side. Despite this, there are a few trends that may suggest an increase in value for digital currencies over the next couple of years:
1. Increased Acceptance
Use of cryptocurrencies in making payments has been adopted by major companies such as Microsoft, Expedia, Tesla and even Subway. It is anticipated that this trend will be upheld since many other companies will come to understand the economic advantages and ease of using such kinds of payments.
2. Government Adoption
Different governments worldwide have different positions concerning cryptocurrencies, with some outlawing them while others put regulations to support their operation. A good number of nations are for the idea and they have been able to put across some of the best regulations that will support it in terms of frameworks e.g., Switzerland, Singapore, Malta. With an increasing number of governments taking on friendly policies regarding digital currencies, there is a possibility that they will be more widely accepted and used in future.
3. Improvement in Technology
Despite being a nascent technology, there have been continuous progress and evolution in blockchain technology. Scalability, security as well as user experience advancements are some of the important factors towards achieving widespread use of the technology.
4. Potential as Global Currency
Globalization has led to the need of having a currency that can aid in doing international trade transactions independently from the economy of any given country. The fact that cryptocurrencies are not limited by geographical factors makes them viable for such a role as well.
5. Regulatory Concerns
Cryptocurrencies are being adopted by governments, but the main challenge is still seen as the regulation towards this adoption. The reason why most countries have put in place strict regulations for cryptocurrencies is due to their association with money laundering, tax evasion as well as low consumer protection issues.On condition that such matters are resolved using suitable legal supervision and compliance, widespread implementation will follow soon.
The Bottom Line
Having been around for sometime now, cryptocurrency is starting to be taken seriously as a medium of exchange. It is difficult not to see the advantages of something that can provide a fast and safe way of carrying out transactions in this era where everything is going digital. Although there are important issues which have yet to be overcome, the future appears bright for cryptocurrencies. Nonetheless, one should always be cautious before investing in currency or any other kind of asset; on the other hand, monitoring the progress of cryptocurrency may help us comprehend how it influences and changes our economic environment for better or worse!
