A cryptocurrency is a digital money, which is an alternative form of payment created using encryption algorithms. These are technology-based intangible assets. Cryptocurrency received its name because it uses encryption to validate transactions.
What is Digital Money?
Digital money refers to any means of payment that exists in a purely electronic form and transactions in which no tangible money changes hands. Digital money is not physical money, like cash or coins, but can be used to make purchases and cryptocurrency platforms are placed in digital money.
Born of Cryptocurrency
Cryptocurrency is a step forward towards a global digital money or currency and crypto has produced one of the biggest mysteries of this century. We know that Bitcoin was born when Satoshi Nakamoto published his thesis in 2008 and in January 2009 the first cryptocurrency was created by Satoshi Nakamoto, the pseudonym for an anonymous computer programmer or group of programmers. Nakamoto’s true identity remains a mystery till date. Some people have claimed to be Satoshi Nakamoto, but so far no one has been able to provide proof. Satoshi Nakamoto is estimated to have mined around 1 million bitcoins in the early days of the network, which would make them one of the wealthiest people in the world.
Cryptocurrencies are the first alternative to the traditional banking system which can change the traditional ways of payment as it has many advantages over current payment methods. Bitcoin is open source so no one person owns or controls Bitcoin.
Which countries adopts bitcoin?
El Salvador is a country in Central America which has officially two currencies, one is US Doller and second is Bitcoin. In 2021, El Salvador become the first country in the world to adopt bitcoin as an official currency. With this adoption it was hoped that it would fix a few big problems with the way that Salvadorans send, receive and spend money but Bitcoin doesn’t solve these problems. It was based on a survey published by the Chamber of Commerce and Industry of El Salvador found that 86% of businesses have never made a sale in bitcoin despite the Law’s mandate that all merchants accept the cryptocurrency.
Central African Republic has join the club with El Salvador to adopt bitcoin as their official currency in April 2022.
What is the future of cryptocurrency, and how crypto will evolve, please also read:
Future of Cryptocurrency? | Bitcoin | Humayun Atif (CMA,CPA)
How transactions Processed and validate?
When buying and selling cryptocurrency, the buyer and seller are typically known through their cryptocurrency wallet addresses. This is a digital wallet that stores a person’s cryptocurrency. Each wallet has a unique address, which is used to send and receive cryptocurrency transactions.
Forms of Cryptocurrency
There are many types of Cryptocurrency and few are as follows:
- Bitcoin
The first cryptocurrency was Bitcoin created in 2009 and its still on top. El Salvador was the first country in the world which adopt Bitcoin as a legal tender.
- Litecoin
This currency is similar to bitcoin but has moved more quickly to develop new innovations and has quick payments process.
- Ethereum
It was developed in 2015 on a blockchain platform and also called Ether.
What is Blockchain?
Cryptocurrencies run on a distributed public ledger called blockchain where all record of transactions updated after every transaction.
We can say that the modern blockchain industry began with Bitcoin and since then Cryptocurrencies are powered by a blockchain technology.
A blockchain is a distributed database or record that is shared among the nodes of a computer network. In simple words, the database that holds all of the Cryptocurrencies information is called the blockchain and they facilitate all cryptocurrencies to be sent across the planet in a flash.
What is Mining?
Mining is the process in which cryptocurrency transactions between users are verified and added to the blockchain ledger. There are different methods of mining like CPU mining, GPU mining & ASIC mining.
What are Cryptocurrency Risks?
- These are new kind of money and the market for these currencies are very volatile.
- It is considered as a high-risk investment due to its volatility and an inability to predict upcoming changes.
- Cryptocurrencies are technology-based intangible assets and can be hacked.
- The cryptocurrency market is highly unpredictable so investors may experience dramatic swings in prices.
- Cryptocurrencies are not control by any central regulating authority, instead using a decentralized system to record transactions and issue new units.
- Since cryptocurrencies don’t need banks or any other third party to regulate them; they tend to be uninsured by any bank.
- Cryptocurrencies are stored in a digital wallet, if you lose your wallet, you may lose your investment.
- Once you have purchased cryptocurrency, you need to store it safely to protect it from hacks or theft.
- Unlike a credit card payment, cryptocurrency payments can’t be reversed.
Conclusion
Cryptocurrencies are still seen as a highly speculative form of investment not suited for all individuals so it is advised by many experts globally to keep your investments minimal in Cryptocurrency and never put crypto investments above any other financial goals like saving for retirement.
It is important for all investors to study carefully and then act wisely to protect your investment.
Investment in commodities are also very attractive way of making money.
Disclaimer
This blog does not constitute investment advice and its author’s opinion based on the information available.
Humayun Atif | CMA, CPA, CA (FIN), MS-IT, CA Articles from Big 4, Certified Forensic Accountant (USA), Six Sigma & Oracle Certified.
Atif is passionate about Business, Tech, and the written word. He is also a published author of the book ‘IFRS Made Easy’. Atif has worked with some of the world’s largest brands in Canada and Dubai. He is a tax and IFRS coach and the founder of accountingblogger.com
Very informative
Nice article, thank you for posting
Very informative article
Very informative. Continue spreading knowledge.