WHAT IS CRYPTOCURRENCY?
Cryptocurrency is a medium of exchange based on blockchain technology and cryptography to record transactions and control the creation of new units. Cryptocurrencies are a subtype of alternative digital currencies. The first decentralised cryptocurrency was bitcoin in 2009. Since then, many other cryptocurrencies have been created. They are often called altcoins as an abbreviation for the phrase alternative to bitcoin.
Unlike digital currencies in centralised banking systems, control in cryptocurrencies is decentralised. For example, in bitcoin, decentralised control is exercised using blockchain, i.e. the transaction database is maintained as a distributed electronic ledger.
Due to large price spikes and emerging fraud, financial regulators are attempting to restrict or regulate cryptocurrencies and all related services and products in various ways. Large advertisers such as Google and Facebook are also acting in this direction, trying to restrict cryptocurrency-related advertising.
Units of cryptocurrency are produced throughout the cryptocurrency system by calculating a commonly known exchange rate. Unlike a centralised banking system such as the Central Bank or Federal Reserve, corporate boards or governments control the supply of currency either by printing fiduciary money or through digital bank registries. In a decentralised cryptocurrency, companies or governments cannot produce units of cryptocurrency. The basic technical system for cryptocurrency was created by Satoshi Nakamoto of Japan.
As of 2024, there are hundreds of cryptocurrency specifications. Most are similar to or derived from the first fully accepted cryptocurrency, bitcoin. The security, integrity, and balance of the ledgers in cryptocurrency systems are maintained by a group of independent people called miners, who use their computers to confirm the date and time of transactions according to a certain scheme, adding them to the ledger. The security of the ledger is based on the assumption that most miners honestly try to maintain it because they have a financial incentive to do so.
Most cryptocurrencies are arranged in such a way that the rate of mining decreases as the process progresses, limiting the total number of units. This mimics the scarcity of precious metals that serve as the basis for traditional money. Compared to conventional money held in banks or cash, cryptocurrencies are less susceptible to confiscation by law enforcement. They are all pseudo-anonymous, although variants, such as Zerocoin, have been proposed to allow true anonymity. Cryptocurrencies also come in a variety of forms.
According to PricewaterhouseCoopers (PwC), most cryptocurrencies have the following attributes:
The code is tamper-resistant.
There are mechanisms in place to prevent the expenditure of units that the user does not own.
Limited supply combined with the market’s ability to break down units in circulation into smaller pieces if necessary.
Lightning-fast and irreversible transfer of real value over the Internet without the intervention of financial intermediaries.
A decentralised exchange network that provides security and verification of transactions.
Internal mechanisms that encourage new participants to join the network through their computers, providing the computing power to keep the network running.
Publicly available transaction information stored in a global public registry, the equivalent of a general ledger.
Personal security provided by public and private cryptographic keys.
An existing core of programmers and volunteers who develop code, ensuring the stability and security of the network