Cryptocurrency Series - 1

 Content

1. What is Cryptocurrency

2. Types of cryptocurrency

3. Advantages and Disadvantages of cryptocurrency

4. Why Criticism of cryptocurrency

5. Other Important Matters

What Is Cryptocurrency?

Cryptocurrencies are systems for allowing secured online payments. "Crypto" refers to the various encryption algorithms and cryptographic techniques that safeguard these payments, such as public-private key pairs, and hashing functions.

“Cryptocurrency” is derived from the encryption techniques which are used to secure the network.

A cryptocurrency is a binary data 

designed to work as a medium of exchange. 

Wherein ownership records of currency are stored in the ledger 

in the form of a computerized database 

using strong cryptography 

to secure transaction records, 

to control the creation of additional coins, and 

to verify the transfer of ownership of currency. 

Cryptocurrency does not exist in physical form (like paper money) and is typically not issued by central authority (e.g. RBI is central authority in India for Indian Rupees). 

Cryptocurrencies typically use decentralized control as opposed to a central bank digital currency. 

When a cryptocurrency is minted or created prior to issuance or issued by a single issuer, it is generally considered centralized. 

When implemented with decentralized control, each cryptocurrency works through distributed ledger technology, typically a blockchain, that serves as a public financial transaction database.

A cryptocurrency is a form of digital asset based on a network that is distributed across a large number of computers. This decentralized structure allows them to exist outside the control of governments and central authorities.

Blockchains, which are organizational methods for ensuring the integrity of transactional data, are an essential component of many cryptocurrencies.

Cryptocurrencies face criticism for a number of reasons:

Its use for illegal activities, 

Exchange rate volatility,

Vulnerabilities of the infrastructure underlying them, and 

Many experts believe that blockchain and related technology will disrupt many industries, including finance and law

However, Cryptocurrencies also have been praised for their portability, divisibility, inflation resistance, and transparency.

Types of Cryptocurrency

The first blockchain-based cryptocurrency ( Bitcoin ) was launched in 2009 by an individual or group known by the "Satoshi Nakamoto." 

Today, there are thousands of cryptocurrencies with various functions and specifications. 

Still the most popular and most valuable cryptocurrency is Bitcoin. 

Some of cryptocurrencies are clones or forks of Bitcoin, while others are new currencies that are built from scratch.

Some of the competing cryptocurrencies released by Bitcoin’s success, known as "altcoins," include Litecoin, 

Peercoin, and Namecoin, as well as 

Ethereum, Cardano, and EOS. 

Advantages and Disadvantages of Cryptocurrency

Advantages

Cryptocurrencies hold the promise of making it easier to transfer funds directly between two parties, without the need for a trusted third party like a bank or credit card company. These transfers are instead secured by the use of public keys and private keys and different forms of incentive systems, like Proof of Work or Proof of Stake.

In modern cryptocurrency systems, a user's "wallet," or account address, has a public key, while the private key is known only to the owner and is used to sign transactions. Fund transfers are completed with minimal processing fees, allowing users to avoid the steep fees charged by banks and financial institutions for wire transfers

1. Funds transfer between two parties will be easy without the need of third party like credit/debit cards or banks
2. It is a cheaper alternative compared to other online transactions
3. Payments are safe and secured and offer an unprecedented level of anonymity
4. Modern cryptocurrency systems come with a user “wallet” or account address which is accessible only by a public key and pirate key. The private key is only know to the owner of the wallet
5. Funds transfer are completed with minimal processing fees.

Disadvantages 

The semi-anonymous nature of cryptocurrency transactions makes them well-suited for a host of illegal activities, such as money laundering and tax evasion. However, cryptocurrency advocates often highly value their anonymity, citing benefits of privacy like protection for whistleblowers or activists living under repressive governments. Some cryptocurrencies are more private than others. 

Bitcoin, for instance, is a relatively poor choice for conducting illegal business online, since the forensic analysis of the Bitcoin blockchain has helped authorities arrest and prosecute criminals. More privacy-oriented coins do exist, however, such as Dash, Monero, or ZCash, which are far more difficult to trace.

1. The almost hidden nature of cryptocurrency transactions makes them easy to be the focus of illegal activities such as money laundering, tax-evasion and possibly even terror-financing
2. Payments are not irreversible
3. Cryptocurrencies are not accepted everywhere and have limited value elsewhere
4. There is concern that cryptocurrencies like Bitcoin are not rooted in any material goods. Some research, however, has identified that the cost of producing a Bitcoin, which requires an increasingly large amount of energy, is directly related to its market price.

Criticism of Cryptocurrency

Since market prices for cryptocurrencies are based on supply and demand, the rate at which a cryptocurrency can be exchanged for another currency can fluctuate widely, since the design of many cryptocurrencies ensures a high degree of scarcity. 

Cryptocurrencies are considered by some economists to be a short-lived fad or speculative bubble. 

There is concern that cryptocurrencies like Bitcoin are not rooted in any material goods. Some research, however, has identified that the cost of producing a Bitcoin, which requires an increasingly large amount of energy, is directly related to its market price.

Cryptocurrency blockchains are highly secure, but other aspects of a cryptocurrency ecosystem, including exchanges and wallets, are not immune to the threat of hacking. In Bitcoin's 10-year history, several online exchanges have been the subject of hacking and theft, sometimes with millions of dollars worth of "coins" stolen.

Nonetheless, many observers see potential advantages in cryptocurrencies, like the possibility of preserving value against inflation and facilitating exchange while being easier to transport and divide than precious metals and existing outside the influence of central banks and governments.

Other Important Matters

Functionality of Bitcoin and other cryptocurrencies is blockchain technology, which is used to keep an online ledger of all the transactions that have ever been conducted, thus providing a data structure for this ledger that is quite secure and is shared and agreed upon by the entire network of an individual node, or computer maintaining a copy of the ledger. Every new block generated must be verified by each node before being confirmed, making it almost impossible to forge transaction histories.

Many experts see blockchain technology as having serious potential for uses like online voting and crowdfunding, and major financial institutions see the potential to lower transaction costs by streamlining payment processing. However, because cryptocurrencies are digital and are not stored on a central database, a digital cryptocurrency balance can be wiped out by the loss or destruction of a hard drive if a backup copy of the private key does not exist. At the same time, there is no central authority, government, or corporation that has access to your funds or your personal information.