The word cryptocurrency comes from the ancient Greek word ‘kryptós’ which means hidden or private. A cryptocurrency is a digital currency or a virtual currency that uses cryptography for security. Cryptocurrency, to understand, is virtual cash or coin. The introduction or invention of first cryptocurrency is still mysterious. In November of 2008, Satoshi Nakamoto, a pseudonym, presented the concept of digital currency and invented a digital currency Bitcoin software in October 2008 and made it an open source in January 2009. Satoshi Nakamoto disappeared in 2010. It is believed that Satoshi owns 1 million bitcoin which is worth $6.56 Billion as I write this article.
Characteristics of Cryptocurrency
Decentralized and No Central Authority
Cryptocurrency is not controlled by any central authorities or banks. All the transactions are processed and validated by a distributed and open network. Transactions are verified by the cryptography technology. Blockchain Technology is used to record transactions. Blockchain are public ledgers for cryptocurrency transactions. It is decentralized and widespread on distributed networks of computers.
As there is no involvement of central authorities and can be traded in online platforms, users are not required to identify while doing transactions of cryptocurrency. Their transfer uses two keys to complete the transaction i.e. private keys and public keys and authenticate the processing. Every user needs to have a unique digital identity and wallets to process and complete the trading of cryptocurrency.
Irreversible & Immutable
Transactions related to the cryptocurrency are irreversible i.e. it cannot be undone. Every transaction is unique and immutable i.e. you need private keys and public keys that are exclusive for the transaction to transfer the them and once the transaction is recorded in the blockchain cannot be undone. Together with that, secure cryptography prevents the blockchain modification and avoids fraudulent.
Limited Supply & Scarcity
Central banks and authorities have control over the printing of physical currencies. Central bank can manipulate the value of currencies by injecting currency or by making a shortage of currencies i.e. can influence liquidity and can create inflationary situations.
In contrast, it is a digital currency with a defined algorithm. Cryptocurrencies have a limited volume i.e. Bitcoin has the maximum supply of 21 million and this the maximum number of bitcoin that can exist and circulate.
A traditional currency system has various shortcomings. The flow of currency in the economy, demand and supply related issues, geo-political decisions etc. impact traditional currency systems. Cryptocurrency overcomes the shortcomings of traditional currency systems. The features such as nodes, private and public keys, blockchain technology etc. make cryptocurrency credible and secure. The chances of fraud are less as every transaction is public and irreversible.