Importance of cryptocurrency in today’s world
Cryptocurrencies are based on blockchains and just like blockchains, they’re decentralized. These digital currencies are not regulated or supervised by any monetary authority or government body. Rather, they operate through a peer-to-peer network that consists of various computers known as nodes. Essentially, blockchains enable having and maintaining a digital database that is accessible to all those nodes that are part of the network. Commonly this is referred to as a distributed public ledger on which every single transaction that takes place on the network is recorded through cryptography.
A cryptocurrency such as Bitcoin which can be bought and traded on any crypto exchange is highly secure as well as digitally validated through a process known as ‘mining’. When ‘mining’ takes place, every piece of information on the Bitcoin blockchain is validated with a highly complex set of mathematical codes. The blockchain network then goes on to verify the entries on the basis of the additions made.
What is all the fuss about!
Before we proceed, let us tell you that you can choose from hundreds of cryptocurrencies that are present in the market. But for this particular article, we will talk about the ones that dominate the market: Bitcoin (BTC) and Ethereum’s native coin Ether (ETH).
In 2008, Bitcoin was created by a person or perhaps a group of developers who go by the pseudonym Satoshi Nakamoto. It was the first-ever financial blockchain to be made and since then, it has seen a tremendous rise in its prices. Don’t be surprised if you find yourself amidst a sea of internet memes stating “If I had XX Bitcoin in 2010, I’d be a billionaire now”. This isn’t far removed from reality as the number of Bitcoin’s billionaires has increased significantly. It has turned out to be such a lucrative option that several retailers and online sellers are now accepting Bitcoin for payments!
Second to Bitcoin in terms of market share is Ether, the native coin of the blockchain network known as Ethereum. The defining difference between the two is that Ethereum is not limited to just financial services, its blockchain network is used for various other purposes that it supports.
Ethereum makes it possible to write smart contracts with the in-built software programming languages it provides. These smart contracts come in handy for transferring as well as mining Ether.
The cryptocurrency market faced a period of extreme highs in a process known as ‘mooning’. This happened in 2017, weeks before Christmas when the cryptocurrency rates soared to never-seen-before heights only to come crashing down. In just a matter of a few days, the market cap went down by 20% globally. There was some respite with yet another peak that followed which was also short-lived as the market fell again and Ethereum alone lost about 25%.
The volatility should not be a reason to assume that cryptocurrency does not have a future or is just a fad, even though many skeptics would say so. Cryptocurrencies offer a great alternative to traditional financial systems. They are quick, secure, online, and global which makes it possible to conduct and record transactions with minimal risk of data piracy. Fraudulent activities are almost negligible and large-scale cryptocurrencies such as Bitcoin do not usually result in inflation. Especially in the case of BTC, no central bank intervention could cause the overall amount of cash to increase as only 21 million Bitcoin can be mined and hence is scarce. That said, cryptocurrencies can be infinite as anyone with the right skills and resources could generate a crypto token and list them on a crypto exchange.
Let’s talk about the economic impact
Growth in the crypto market has been tremendous in the last two years. In 2020, the overall market value was $300 billion which rose to $2 trillion by February 2022. October 2021 was when the market was at its peak and the total market capitalization stood well above $3 trillion. However, it is important to note that among the sea of cryptocurrencies that exist today, BTC and ETH dominate the market.
Why does this demand your attention!
At present, crypto exchanges and the cryptocurrency markets, in general, are at a nascent stage. The industry is still growing and therefore any wise investor must not be totally carried away by the rise of Bitcoin and Ethereum. Beyond these two, there are numerous other options, and a lot of them are backed by great technology, companies as well as management.
Yet another thing that is of importance here is that even though cryptocurrencies are taking the credit away for being profitable investments, the real hero here is blockchain technology. Without this technology, there would have been no concert of a decentralized online ledger.
Blockchain provides the platform and technology to run cryptocurrencies that can be listed on a crypto exchange for trading purposes. Typically, any data that can be recorded can be stored on the blockchain and this need not always be financial information. Medical records, immigration information, birth certificates, or insurance policies can be securely registered and accessed through a blockchain network.
Reasons people are looking to take a dip in the crypto pool
Fraud-proof: Every time a cryptocurrency comes into existence, the transactions are recorded on a digital public ledger. The coin owners’ identities are encrypted to ensure that the record-keeping is done in a legitimate way.
Identity theft: All transactions on a blockchain are carried out via digital wallets. The public ledger makes sure that all of these wallets are able to calculate the exact balance. Every transaction is verified to ensure that the right owner is the spender of the crypto tokens. Often, the public ledger is known as a ‘transaction blockchain’. Blockchain technology makes sure that digital transactions are validated via encryption or smart contracts. This ends up making the entire system pretty much unhackable and eliminates the risk of fraud.
Instant settlement: Blockchain technology and the optimized ease of use is the reason why cryptocurrencies are so in demand right now despite their incredibly high values. The prerequisites for getting started are just a smartphone and an internet connection. Once these are in place you’re all set to be your own bank and carry out your transactions.
Accessible: More than two billion in the world cannot use traditional systems of banking and exchange. What they do have is internet access through which they can easily become a part of the cryptocurrency market.
You are the owner: Other than the cryptocurrency system, you would not come across any e-cash system in the world where you are the direct owner of your account.