Cryptocurrency
The term Crypto currency is producing enough attention and interest in the world especially after the "performance" of BitCoin. To make the understanding a bit easier let’s talk about BitCoin. What is the difference between the currency authorised by the Government(Fiat Money) and BitCoin?
A simple answer will be decentralised ledger. Now the next question that will follow this answer will be what do your mean by decentralised ledger? Let’s make the explanation simple. In a centralised ledger the Central bank or your bank will make entry and maintain the ledger. They have control. This is what happens when you maintain an account with a bank for Fiat Money.
In a decentralised ledger, everyone has control over the ledger but that does not mean you can manipulate. When it comes to cryptocurrency it is a decentralised ledger. To give a little more understanding on the decentralisation aspect of the network means there is no central server where transactions are hosted or controlling authority. In a decentralised network like Bitcoin, every transaction to have ever happened is displayed for everyone to see. Each transaction file also consists of senders and recipients public keys. Let’s keep “Blockchains” and “Distributed Ledgers” for a discussion at a later time and just be focused on the basics. Also, let us not get into the advantages and disadvantages of Fiat Money and Crypto Currency at the moment and just address the simple question “ What is Crypto Currency?”. Ofcourse I will give you an intresting fact to have a feel of the difference in the end.
It is a digital or virtual currency which can work as a medium of exchange; meaning, you can use this as an exchange to buy from the market. They use cryptography technology to process, secure and verify transactions. They are not controlled by any central authority such as a central bank and instead, they are limited entries in a database such as a blockchain that no one can change or manipulate, unless certain conditions are met.
Cryptocurrencies came into being as a side product of Satoshi Nakamoto( this is a nick name), the brainchild behind Bitcoin cryptocurrency.Cryptocurrencies, are digital assets that act as a medium of exchange that governments have no control over. The decentralisation aspect ensures that central body can control or influence their value (no printing, revaluation or demonetisation ).
Some countries have banned cryptocurrency.
Let us close with an interesting fact:
Fiat money has an unlimited supply which means central authorities have no cap to the extent in which they can produce money. As the central authorities print more money, it is like pulling some money from our wallet without our knowledge.
Most cryptocurrencies have a cap when it comes to supply, which means there is a set amount of coins that will ever be in supply. For example, the total number of Bitcoin coins that will ever be in supply is capped at 21 million.
While, with fiat money, it is impossible to tell the amount of money in circulation at any given time, but with cryptocurrencies, it is possible. Interesting?
30/08/2020