Cryptocurrency Recap
Read this to refresh your knowledge about cryptocurrency
The role played by banks while doing any sort of transaction is identified as a problem — it paved the way for the birth of cryptocurrency. Besides, the time taken to complete an action, security concerns, paperwork hassle to open any sort of account, traceability, etc. are also among other issues that cryptocurrency has directly addressed.
Currency is a medium of exchange and crypto which is short for cryptography, means the act of securing something by means of encoding or encryption. So, cryptocurrency is a digital currency that has no physical existence and is secured through end-to-end encryption capable of fast transactions between two parties anywhere in the world.
How is cryptocurrency so secure than traditional banking systems? Well, there are many flaws in the traditional system that can be taken advantage of; such as weak server security, incentivizing individuals, counterfeiting papers, and last but not the least, plain and simple old-fashioned robbery.
However, in crypto, there are no chances of that. Because there is no medium other than the sender and receiver. A digital wallet is needed for any sort of crypto transaction. The sender after filling in the transaction details like the receiver, number of coins sent, etc. makes his amount ready to pass through the hashing algorithm.
Then after that, using the sender’s private key, the data is passed through a signature algorithm. This private key is needed to uniquely identify the sender. Following that, a public key is used to add that data to the public network where it is verified by miners.
Miners are people who verify the authenticity of all the crypto transactions in the world. After it gets verified, the money is then sent to the receiver’s digital wallet and this entire process is done in a matter of seconds.
Let’s talk a bit more about mining. A miner’s computer is part of the global crypto public network and its main function is to check whether a transaction is legit or not.
For ease of understanding, let’s imagine an excel sheet. It contains info about all the crypto transactions in the world. Whenever any change occurs, it is immediately adjusted in the sheet. Now, what if there are more sheets like that containing the same info? Then, those also need to be adjusted accordingly following the first one and the process will be repeated if there are more sheets like that.
This decreases the chance of any mistakes or mishaps as all the sheets have the same info and are being updated concurrently. These excel sheets are the miner’s computer, a part of the global blockchain network.
A transaction will only pass through if it is verified by all the mining computers in the world. It might seem possible with one of the blocks (mining computers), but to tamper with all of them in the blockchain (public network) is impossible. This is what ensures the security of cryptocurrency.
After some time, the miners are awarded cryptocurrency as a reward for their hard work.
There is a very practical process to tackle inflation. After 21 million bitcoins are supplied, there will be no more and the existing bitcoins will have to be circulated. The number is 18 million per year for Ethereum, 50 billion for Stellar, 84 million for Litecoin, etc.
Ethereum, Bitcoin, Tether, Cardano, Binance Coin, etc. are some of the most popular bitcoins among 18,000 types (as of March 2022) of existing cryptos in the world. They all have identifiable traits that make them a bit unique from their counterparts.
But it’s not all rainbows and sunshines with cryptocurrency. There are valid points of concern regarding them.
For mining, a very high-end pc and strong internet are required. It can be done with a potato pc, but it won’t amount to much other than a burnt smell. Mining is identified as the chief reason for global silicon chip shortage in the last couple of years as all the latest hardwares (GPU, CPU, etc.) were stocked up for this sole purpose.
It reduces a lot of paperwork, yes; but that doesn’t necessarily mean that it’s good for the environment. A huge amount of power is required for running these computers so it causes negative impacts.
There is an issue with volatility as well. Since, there is no ‘physical’ presence of these coins, any sort of rumors, hype or mass hysteria prove enough to send the crypto market into a frenzy. Investors need to be cautious.
Last but not the least, its involvement in criminal acts. Cryptocurrency is untraceable. They do have the private key from a user for identification, but that is generally a pseudonym and can be anything but the real identity. Therefore, this has become the trusted source of payment for any sort of shady activity.
