Nowadays, all we’re hearing is bitcoin this and bitcoin that. But what actually is bitcoin and what’s so special about it? This article will enlighten you about cryptocurrency and how it all works.
What is crypto-currency?
Cryptocurrency is a virtual currency that is created from an encrypted code and a unique hash algorithm. It is a step in the evolution of currency and a futuristic description of money as we know it. Cryptocurrency is different from your PayPal, Visa card or any of the cashless alternatives we are acquainted with. For a lack of a better explanation, cryptocurrency is digital cash based on a peer to peer decentralised network. The most common cryptocurrency is bitcoin and it was created by Satoshi Nakamoto in 2008.
Cryptocurrency doesn’t work like a credit card. In many senses, it feels like a throwback to bartering days when actual gold (not coins or currency) was the form of payment for products and services. Instead of mining gold, you mine bitcoin and any other altcoins. In this case, miners make use of a program where they are required to solve a complex algorithm that taps into computer hardware. Unlike physical money that we put in the bank for safekeeping, cryptocurrency is electronically stored in a blockchain where it is encrypted by the miner.
What you need to know
There is more than one cryptocurrency in the digital market compiled on an ever-expanding list. Here are but a few active cryptocurrencies which have their own unique hash algorithm (including the infamous Bitcoin).
Transactional properties of cryptocurrency
The transactional properties of cryptocurrency differ from those we are used to interacting with regarding physical money. There is a long list of technicalities we can name and explain, but these are the most relevant:
- Pseudonyms: You cannot trace your transaction back to a physical address or a physical identity because, aside from the encryption code that you will need to break, everything in the virtual world has a pseudonym. That is why the likes of WannaCry make use of cryptocurrency.
- Fast and global: Transactions in the virtual world are inherently swift. Once you agree with the conditions and essentially click your signature, the process is complete. Considering the virtual world has no laws, policies or boundaries, transactions from the across the world are equally prompt.
- Permanent: Once your transaction is complete, you can be sure that there is no reversing it. This means no refunds, no 30-day policy and certainly no undo button.
- Secure: With online banking, the SSL certificate/https code secures your banking information (though this encryption can be hacked with relatively minimal effort). Transactions in the virtual world are secured by the unique cryptography system where a key – which only the owner of the currency knows – is required to help with decryption. Additionally, these currencies also have their own unique code and hash algorithm.
- Permissionless: This characteristic is very appealing because when you make a transaction there is no virtual middleman that will grant you permission to complete the transaction i.e. no OTP code. Basically, there’s no gatekeeper to hinder the transaction.
Yes, crypto-currency is completely legal. In some cases, is it actually encouraged resulting in a huge amount of profit for entrepreneurs who make use of it. There are however, countries like Vietnam, Iceland, Bolivia, China and Ecuador that have banned bitcoin due to its notoriety and its high currency value. Equally so, there are countries like Australia, Canada, USA and other European Union countries that are bitcoin friendly and are cautiously optimistic about the rise of cryptocurrency and how it might alter and shape the way business is done.