by Farzad Vajihi Stock Market and Cryptocurrency Analyst, Ph.D. in Economics
Cryptocurrency is a peer-to-peer virtual digital technology that runs on blockchain technology that people can use to transfer money between people.
To understand how cryptocurrencies work, we must first determine how they are acquired.
- Since they represent monetary value, they can be acquired by converting common currencies into crypto. The general procedure of acquiring crypto is similar to that of developing stocks on the stock exchange without taking influence from the government and banks.
- Crypto mining is the second way to get crypto. There is a public ledger that records all transactions facilitated using cryptography. Cryptocurrency transfer involves complex encryption of funds prior to transmission, actual transmission and decryption of funds upon receipt, and personal crypto wallets for all users, among other tasks. This public ledger facilitates all of this digital cash flow. Hence, they require immense processing and computing power to support the system. Since no organization oversees this process, the infrastructure used to facilitate users provides it. As payment for facilitating these processes, users, or rather “miners”, are compensated in the form of crypto.
One of the most distinct functions of crypto that differentiates it from conventional currencies is that it is not controlled or influenced by any government, bank or other institution. Usually, banks are responsible for cashing checks and amounts, and they are responsible for ensuring that users do not use the amount of money they have already spent. Banks are the only ones who can perform this function; in other words, this function is centralized around the banks. Unlike banks, crypto uses transaction files and private keys to confirm payment and receipt of transactions. Once miners confirm a transaction, that transaction is added to each entity of that crypto. As such, the payer cannot reuse the same funds to someone else since they can see that it is already used, and a recipient cannot decline the receipt since it exists in the system of everybody. This process is fast, and as a result, governments accept crypto as official currency and allow its use in the hands of people, businesses, and organizations that can receive this form of money. Additionally, the government can recognize online auctions that have been paid for using crypto to facilitate the transfer of ownership. Some governments are working on their cryptocurrencies to
Transferring currency between countries could be a huge pain and an unnecessary inconvenience, especially in an emergency. Even the specifics of online bank transfer make the process very tedious. First, they need to determine if the recipient exists, check if they can receive the money as some accounts may be canceled and currency conversions. They have to plan the money transfer, among other issues. Well, those who have suffered needlessly at the hands of the banks can breathe easier for here is their saviour; cryptocurrency. From super-fast currency transactions between accounts taking just seconds to having no geographic barriers, cryptocurrency makes transferring money faster than sending an SMS. In addition, the system is secure; therefore, users are guaranteed to receive their money from anywhere, anytime, to anyone, and even without a limit to the amount of currency that can be exchanged. Since it is a universal currency, the user does not lose money in conversion, and even better, since fewer people are involved, you are even charged less. Therefore, to say that crypto is a much better option than regular bank transfers is not an exaggeration.
It is a well-known fact that governments and banks influence the stock market and currency values to generate their income. As such, they prey on people who trade, taking whatever they have in their accounts. This is not the case for cryptography. Since government entities do not control them, they have a certain sense of value. That said, crypto can be volatile and is easily influenced by people, and since people are a variable factor, it’s not strong enough ground to build on. However, due to its many advantages, crypto has immeasurable value. The security and convenience it carries since you can easily access it makes it a valuable product, and such products with unique benefits cannot be cheap, which is why they are so expensive.
Crypto being such a fantastic currency, has some shortcomings. For example, since it competes seriously with other currencies, governments are not so eager to facilitate its implementation as it will reduce some government revenue. Moreover, since the process is very secure and decentralized beyond the reach of the government, it can create an avenue for the transfer of money by criminal organizations. Also, since it is not “moderated” by a government’s GDP growth, it is difficult to predict how such a currency would fluctuate, and one can end up losing the value of one’s money by a significant amount by only a few days.
Cryptocurrency has the potential for rapid payment to facilitate emergency surgeries to save someone’s life. Crypto could easily support countries in need of food, water, shelter, security, and other basic needs. It could help people pay for their fuel with cryptocurrency. This could help the future generation of kids on school trips pay off the bets they made in crypto.