What is Cryptocurrency?
A few years ago, we did not know what a cryptocurrency was. We didn’t know much about its benefits and the potential it holds in terms of the future of the world economy.
Let’s understand what a cryptocurrency is.
Cryptocurrency is a form of digital currency that uses encryption to secure financial transactions. It is also a form of digital asset that operates independently of a bank. In this regard, it can be used as a medium of exchange and a store of value.
The Birth of Cryptocurrency
Cryptocurrency came into being back in January 2009 when Satoshi Nakamoto released the white paper for Blockchain technology and Bitcoin. It provided the basis for a payments and transactions system operating devoid of centralization.
Typically, a cryptocurrency transaction on the blockchain takes place in this manner – X gives Y a certain amount of bitcoins. The transaction is facilitated once it is signed by X’s private key. Post signing, the transaction is broadcast to the network but it takes some time for the transaction to be confirmed (as it has to be verified by a number of nodes in the blockchain). Miners confirm the transaction and enter it into a public ledger known as the blockchain. The transaction is secured by mathematical algorithms, and not by any human being.
Funds are stored in a hodler’s (someone who buys and stores cryptocurrency) wallet and can be accessed using his or her private key. Only the owner can take out cryptocurrencies from his or her wallet, and send those funds to another person on the blockchain.
The Way Ahead
In the times to comes, cryptocurrencies will replace traditional currencies, as it enables the transfer of funds without the intermediation of a bank. In other words, banks as intermediaries are removed from transactions. In this manner, cryptocurrencies ensure people with the control of their own finances.
Though cryptocurrencies are still in the early stages of adoption, they have an amazing future as they are fast, secure and efficient as a payments system. Governments in various countries have their set of regulations, as well as inhibitions when it comes to cryptocurrencies. There is hope that mass adoption and large-scale use if cryptocurrencies will happen as the world has already entered the digital payments era.
Ways in which Cryptos will Replace FIAT Currency in the Near Future
- Secure: The beauty of cryptocurrencies lies in the fact that transactions involved in the blockchain are secure, especially in comparison to traditional currency trading used in online wallets like PayPal (PayU). In the event of a fraud, the account gets frozen resulting in an ordeal with regards to getting the funds released. The incidences of frauds occurring with regards to cryptocurrencies are minimized since the sender is the only one with access to the online wallet, through his or her private key. Moreover, the blockchain thrives on peer-to-peer encryption further reducing the likelihood of breaches on users’ funds.
- 24/7: We are often subject to the rules and regulations imposed by banks when it comes to controlling our finances and investments. However, this aspect is bound to leave us with the adoption of cryptocurrency and blockchain technology. Unlike banks, that are shut on weekends and public holidays, resulting in people having to wait for banks to be open for them to send or receive money – cryptocurrencies can be transacted at any point in time, whether it is on a holiday or not.
- Fast: Sending money abroad takes a lot of what is known as processing time. The length of processing time will be reduced significantly as a result of there being no intermediaries involved in transactions. Time taken for processing will be reduced from 2 to 3 days, to a matter of a few minutes.
- Low Fees: Transferring funds globally requires high transaction fees. This is because of the presence of intermediaries associated with traditional banks and financial institutions. Transactions on the blockchain involving cryptocurrencies will be significantly lower in comparison to those related to traditional banks, as a result of the absence of an intermediary or third-party in the form of a bank or financial institution.
- Credit Card Transactions: Another area that will experience change as a result of adopting cryptocurrency is that of credit card transactions, that usually go through layers of intermediation. With cryptocurrency credit cards, various layers of intermediation are set to be removed.
Do you think Cryptocurrencies will replace traditional fiat currencies in the near future? If so, what are the ways in which you think Cryptos will do so? Let us know in the comments section below.
About Bank Of Hodlers
Bank of Hodlers is building a customer-centric bank on the blockchain, by providing financial services like cryptocurrency-backed loans and cryptocurrency-backed cards.