We all have heard about bitcoin somewhere or other but do you exactly know what it means? For the amateurs, it is a form of cryptocurrency which is a medium of exchange like standard currencies such as the US Dollars. Still, these are specifically designed to exchange digital information.
In this article, we will learn more about this along with the types, how it works, and the advantages and disadvantages it carries. So, let’s get started!
Types of Cryptocurrency
Bitcoin was the first blockchain-based crypto which is still the most popular and valuable. In today’s world, there are numerous alternate cryptocurrencies with different specifications and functions. Some of these are clones or forks of Bitcoin, while others consist of new currencies that were built from scratch.
Some of the cryptocurrencies competing with Bitcoin, also known as “altcoins,” include Litecoin, Peercoin, and Namecoin, as well as Ethereum, Cardano, and EOS.
How does it Work?
Cryptocurrencies make use of decentralised technology to let users make payments securely and store money without using their name or through a bank. They run on a distributed public ledger called the blockchain, which is a record of all the transactions updated and held by currency holders.
These units of currency are created through a process known as mining, which involves the usage of computer power to solve complicated mathematical problems that generate coins. Users can also buy these currencies from brokers, then store it and spend them using cryptographic wallets.
- No third parties needed for fund transfer
Cryptocurrencies make the transfer funds easier as the transfer takes place directly between two parties, without the involvement of a trusted third-party such as a bank or a credit card company. These transfers are secured by the use of public keys, private keys and other different forms of incentive systems such as proof of stake or proof of work.
- Secure fund transfers with a minimal fee
In Modern systems of Crypto-currency, a user’s wallet or account address has a public key. In contrast, the private key is disclosed only to the owner and is used to sign transactions which maintain privacy and security. These fund transfers are later done with minimal processing fees, allowing the end-users to avoid the unnecessary charges by the banks and financial institutions for wire transfers.
With the introduction of this technology, over two billion people with access to the Internet who don’t have the rights to use conventional exchange systems, are clued-in for the crypto-currency market.
- Instant Settlement
Ease of use is the primary reason for the high demand of crypto-currency. All you need to do is to have a smart device, an internet connection in your possession and you can instantly become your bank making payments and money transfers.
- The constant fluctuation of the price
The constant change in the value makes it quite difficult for the users and merchants to accept and use this currency. It raises questions and kills trust as you can never be entirely sure how much would be the value of crypto tomorrow.
- The lack of merchants accepting digital money
The trust rate of digital money is still meagre. The ground reality is that even though crypto is a growing trend, a lot of companies still haven’t accepted digital modes of payments.
- These facilitate Illegal activities.
The semi-anonymous nature of cryptocurrency transactions makes it well-suited and easy means to host illegal activities, such as money laundering, tax evasion and other black marketing of money.
- Not many people know the benefits of crypto-currency
Masses are still not aware of the crypto and hence often scared to indulge themselves in this mode of payment.