What is Cryptocurrency? How Cryptocurrency Affects the Existing Financial System
Digital money is one of the interesting discoveries made in this century. This innovation has changed the way we understand money and handle cash. You can understand Cryptocurrency as digital cash that you can spend, send, receive, save, or build your assets (cryptocurrency assets) for profits. Blockchain technology has given birth to Cryptocurrency, and this innovation has presented something new and fascinating for every walks of life, and most importantly, financial systems.
What do We Know About Cryptocurrency So Far?
Cryptocurrency is money; however, it does not have a physical existence just like paper money. In fact, Cryptocurrency is digital money that can only be stored virtually. Just like you store your fiat money in banks, you store your cryptocurrencies in cryptocurrency wallet, crypto exchanges, and cryptocurrency banks. You need private keys and a passphrase to access your wallets. Your cryptocurrency wallet can be a hardware wallet, a desktop wallet, a smartphone wallet, or a web wallet. Crypto exchanges are the platforms where you exchange, buy, sell or trade your cryptos. Wheres crypto banks are the virtual banks where you can deposit cryptos and earn interest or get a loan.
Fiat money is printed by the Central Bank of the country, and the Central Bank is under the control of the government. Cryptocurrencies are created through the process called mining, and mining is available to everyone provided he has hardware and resources to do so. Fiat money is completely controlled by the government, however, cryptocurrency is controlled by the public.
Even though Cryptocurrencies are banned in some countries, you can use cryptocurrencies just like real money to pay for goods and services, receive funds, send funds, etc. Even though cryptocurrency does not have a physical existence, you can still use it for phtsical transactions. El Salvador is using Bitcoin just like fiat money.
Different Forms of Cryptocurrency
When we are discussing cryptocurrency it is not possible to leave behind Bitcoin as it is the first cryptocurrency. It was created by an anonymous creator Satoshi Nakamoto. When Bitcoin was it was worthless. But in a couple of months, the value started increasing. Just in 12 years, the value of Bitcoin became from $0 to $50,000.
Bitcoin was created in 2009. In a couple of years few more cryptocurrencies like Litecoin, Namecoin, Bytecoin were created. In 2015, Ethereum was launched. Currently, Bitcoin is the number one cryptocurrency by price value and market capitalization, and Ethereum is the number two cryptocurrency by market capitalization. The total market capitalization of the cryptocurrency market is 2 trillion USD.
Some of the popular cryptocurrencies are Bitcoin, Ethereum, BNB coin, Solana, Cardano, Mattic, Monero, Dogecoin, Dash, etc.
Cryptocurrencies are called cryptocurrencies because they are stored in a cryptographic ledger. Cryptocurrencies are decentralized money. Unlike the fiat currency that is completely controlled by the government, cryptocurrency does not have a central authority. It is created through the process called mining, which actually is a process of solving complex mathematical equations by special computers.
Purpose of Cryptocurrency
When Satoshi Nakamoto, the anonymous creator of Bitcoin, wrote Bitcoin White Paper, he proposed money that has high transaction speed, low transaction cost, is completely anonymous, and also can be created by everyone (mining). Bitcoin came against the existing financial system (banks) that took a long time to send money, charged high transaction costs, required for revealing identity to send money, and was completely controlled by the government.
Bitcoin was basically created as a payment system to be used instead of the banking system. However, over the years it has grown into digital assets that can give you profit through investment or trading. The cryptocurrencies that followed Bitcoin came with better transaction speed and lower transaction costs.
Currently, cryptocurrencies are viewed as digital assets. Just like you invest in stocks and bonds, you can also invest in cryptocurrencies. You will profit from your crypto investment when the price goes up. The price of cryptocurrencies is determined by the market, and it goes up with the demand and goes down when the supply is high.
Decentralized Financial System
Cryptocurrency has given birth to the decentralized financial system, completely driven by the market, and completely controlled by the community. Cryptocurrency is decentralized money and is used in decentralized financial services.
The Decentralized Financial System did not come as a concept to replace a centralized financial system but as a financial system that can run parallel to the existing centralized financial system. The ultimate aim of cryptocurrency is to add people to its network who are not yet included in the existing centralized financial system.
Digital money is one of the interesting discoveries made in this century. This innovation has changed the way we understand money and handle cash. You can understand Cryptocurrency as digital cash that you can spend, send, receive, save, or build your assets (cryptocurrency assets) for profits. Blockchain technology has given birth to Cryptocurrency, and this…