Cryptocurrency is a digital asset that is primarily used as a means of transaction to secure financial transactions, control the creation of additional assets, and verify any transfer of assets with the help of strong cryptographic technology. It is also known as a form of digital currency or virtual currency. Unlike central banking systems, this is a decentralized system of control and financial transactions that operates through a chain of blocks that is used primarily for financial transactions.
The first decentralized virtual currency to be developed in 2009 is Bitcoin known as a virtual currency unit and operates independently without the assistance of any bank or central administrator. Since then, about 4,000 altcoins of various bitcoin variants have been developed. Bitcoin is considered a peer-to-peer electronic cash system where users make transactions directly without intermediaries.
Blockchain is a data file made up of numerous blocks that keeps records of all previous bitcoin transactions as well as the creation of new ones. The average average time between each block is about 10 minutes. The most common use of bitcoin is compatible with external software called Bitcoin wallet. By using this software, the transaction of bitcoin units can be easily stored, received and managed. To make transactions using bitcoin, you must have an account on any of the bitcoin exchanges around the world and you must transfer fiat currency to that account. Thus, the account holder can make future transactions using these funds. Apart from bitcoin, some of the other sources of cryptocurrency are petro, which is mainly used for oil and mineral reserves.
There are some advantages and disadvantages associated with using digital currency. The main advantages of using a virtual currency are: –
• Provides a quick transparency layer: –
Bitcoin usually works with the help of a ledger called Blockchain that records and monitors each and every transaction. Once a transaction is made and recorded in this ledger, it is considered static. These transactions can be verified at any time in the future and, therefore, in addition to this, it also guarantees the security and privacy of all transactions made through a specific account.
• Fast processing and portable use: –
Billions of dollars of bitcoins can be easily transferred from one place to another without any detection with the help of a single memory unit. While performing any type of transaction, the participation of any third party can be eliminated using this bitcoin technology. This will result in an easy and fast transaction without the approval of a third party,
• Low transaction costs: –
The transaction costs involved in exchanging these digital currencies are much lower, making it more affordable than the real currency for people around the world. Therefore, the cost of any type of transaction made is much lower, which turns out to be an advantageous feature for the population whenever it makes any transaction.
• Combats and eradicates poverty: –
Often banking systems and financial institutions do not provide help or assistance, especially for backward classes in rural areas. Bitcoin serves as an alternative in those cases where it extends its robust financial services to anyone with Internet access. It often serves as support for poor and oppressed classes who, in most cases, are not given any viable alternative.
As a new or newer technology arrives, there are also some negative factors associated with its use which are the following: –
• Lack of knowledge and distrust of the population: –
Due to the ignorance of digital currency, people are more likely to be suspicious of its widespread use. Therefore, there are very few business systems that accept these sources of cryptocurrency, thus limiting business systems that prefer to use virtual currency in their daily transactions.
• Non-traceable transactions: –
Since transactions made by Bitcoin cannot be located, it provides a space for criminal transactions. In these cases, drug traffickers and scruples are the ones who make use of this virtual currency so that their illegal activities are not easily detected.
• Volatile nature and uncertainty: –
Sometimes cryptocurrency is volatile and continues to change often on a large scale. Sometimes people make a lot of money when the market rates of these virtual currencies skyrocket and sometimes they also face big losses when the price falls.
Cryptocurrency is an innovative but amateur concept that can affect the entire financial market. It is true that this digital currency has captured the attention of the world in a short period of time. There are always advantages and disadvantages in all the new technologies that appear in the market. To make the best use of it, you need to examine both parties before making decisions.