There are many people around us who are well versed with the concept and handling of digital money. Also, there are many who don’t have much clue about it, but wish to know it better. This blog is my effort at simplifying cryptocurrency for everyone to understand.
What does money mean to us ? For one, we feel excited on holding it in our hands or on seeing the numbers in our bank accounts ☺️ . Specifically, it gives us security and the ability to buy what we desire. It also enables lending, selling, making agreements and many other kinds of financial transactions. We have been doing this with paper currency notes. For sometime now, credit/debit cards have also become common. E-wallets like Paytm have eased out our buying experiences by providing another convenient money transfer platform. Stocks in stock markets enable indirect holding of our money, whose value appreciates/depreciates depending on market dynamics. Currency notes, money in bank, gold and stocks etc, they all mean safety and security for our future. They all give us buying power.
Digital currencies are comparatively new entrants in the same financial arena. They have been around for almost a decade and are now almost impossible to ignore.
Any piece of data or information on a computer or internet is digital data. Any item that can give us purchasing power or security and exists on the internet/computer can then safely be assumed to be digital currency. Currency that is draped by a protective layer to prevent fraud or theft is called cryptocurrency. Bitcoin, Litecoin, Ethereum, Ripple and a few more are some of the popular cryptocurrencies.
As a simple rule of economics: Anything that is abundant in supply, will cost less. Reversely, anything available in limited quantity will be expensive. Cryptocurrencies like bitcoin were designed to be produced in limited numbers. People try to procure them as their restricted numbers results in their value appreciation. As their value fluctuates, they can then be traded like stocks and shares.
Cryptocurrency names sometimes tend to confuse us. The term coin is just to impress upon us that it is similar to money. It is not a physical coin as such ☺️ . We can buy and sell cryptocurrencies using digital wallets. These digital wallets are interfaces or third parties that help in trading with cryptocurrencies. They also help purchase our regular commodities like clothes, shoes etc with these crypto coins.
The question that arises often is, why cryptocurrencies are popular? How is it better than our conventional banking system? For one, cryptocurrency runs on decentralized systems. What that means is that it is maintained by thousands of machines and people all over the internet. There is no single company or institution managing your cryptocurrency. When huge number of people monitor each transaction, fraudulent activities are averted.
Being modelled over a distributed system, fears of a natural disaster destroying our bank and savings, don’t exist.This distributed and fraud tolerant nature of the system is made possible using blockchain technology. I will not delve further into blockchain as it may get complicated for this blog ☺️ . I will like to mention, though, that blockchain is now being considered for use in government benefits distribution systems as it will ensure the benefits are delivered to rightful recipients by eliminating fraudster middlemen.
New technologies take time to percolate through the length and breath of any culture. The advantages and popularity of cryptocurrency have already got it ample recognition. It may not be too far fetched to imagine our kids getting their pocket money as some form of kid friendly cryptocurrency in near future ☺️ .
Pooja's Tech Central 