Cryptocurrency, Bitcoin and Blockchain are the biggest buzzwords of the year 2017. While people identify cryptocurrency as some form of digital money, most do not really understand the concept in its entirety. To add to the misery, any web search of these words only lands us in an ocean of confusion with cryptic terminologies and extremely technical explanations. While a complete research on cryptocurrency and its functions requires days of research and study, we’ve tried to summarise the basics in a simple way here in this blog.

The Popularity of Cryptocurrency

Cryptocurrencies like Bitcoin have been attracting many investors across the world because of its popularity and increasing worth. However, others are shying away from it considering the associated risks. In spite of the lack of understanding around cryptocurrencies, a large group of people are constantly buying and selling these digital currencies, majorly Bitcoin. However, there’s volatility associated with them.

Consider an example of Bitcoin that was showing a decline in value in Sep’17, which has risen by over 8% in past 3 months. Here’s a graph denoting the fluctuation of Bitcoin value from Aug 29 to Nov 29, 2017.

cryptocurrencies

Source: Coindesk

Cryptocurrency – The Beginning

Before Satoshi Nakamoto introduced Bitcoin in year the 2008, digital money was all about a network of payments having accounts with balances and the transactions initiated through them. This digital payment network was tracked by a centralised body that keeps a record of every transaction happening through digital currencies. The users had to rely on this central entity – making it the sole authority, which carried a risk of manipulations in transaction value/amount.

But, with the advent of Bitcoin, decentralisation of payment networks became possible. Every single participant announces the initiation of transactions to the peer network and authenticates them using a ‘Private Key’. These transactions are further verified by the miners using their ‘Public Keys’. It was given a name Peer-to-Peer electronic cash system where any discrepancy in transactions and disagreement between participants will affect the entire network.

The technology that supported this system is called Blockchain. It is regarded as one of the most anticipated emerging trend in the banking sector and has already created a buzz all over globe. Though there are a lot of technical details behind how it works, this is how we can put it for you in an easy-to-understand manner: Blockchain is a series of blocks that are a collection of entries in the centralised database, which once entered upon approval by the peer network cannot be modified.

But then, what are cryptocurrencies after all?

Well, we have been talking about the popularity of cryptocurrencies, how did they come into being and what is the technology behind it. Now, let us understand what they really are.

In simple words, a cryptocurrency is defined as digital money that uses a technology called cryptography. Cryptography ensures that these virtual currencies are secured and cannot be duplicated.

They are not the fiat currencies that are controlled by the government and regulatory bodies. E.g. Rupees or Pounds. Nor they are high-valued physical commodities (or the non-fiat currencies) like gold that aren’t legally governed. Cryptocurrencies are those that may be put somewhere in between them. They are legally identified by several governments of different countries but are virtual in nature i.e. they cannot be quantified physically.

Benefits of Bitcoins and Altcoins (alternative cryptocurrencies)

  • No risk of personal information of participants being compromised, like the bank account and credit card number etc.
  • Transactions can be done anytime, anywhere and for any amount using internet connectivity and a smartphone.
  • Minimal transaction fee, particularly advantageous in case of international transfers.

The Future of Cryptocurrencies

With constant fluctuations in the value of cryptocurrencies in the recent past, there are a lot many speculations about its survival in future. While some governments have legalised these currencies, developing countries like India have not yet made them an official currency or listed them in Stock Exchange (NSE/BSE) for trade. Nonetheless, it is still too early to comment on their fate. For now, it is considered volatile on a long-term, yet with continuous developments strengthening the overall payment network of cryptocurrency, its liquidity will be increasing over time.

Leave a Reply