“Digital Currency”, “Digital Money”, “Electronic Money”, or “Electronic Currency” are all same but different words used for currencies in digital form.
Such type of digital money bears similar properties to physical currencies, it has gained popularity and become important for banks, organizations, government and a diverse set of individuals.
But way beyond to what has been stated in the press releases, you should know about the basic concepts.
What Is Electronic Currency?
If you have to take away everything revolving around cryptocurrencies, then to put it in better words, these are limited entries recorded in the database which can never be altered without fulfilling specific conditions. It may seem simple, but, much to your surprise, this is the way you define a currency.
Consider the money that’s credited into your bank account. It is nothing but the entries that are fed through a system. Anyone can procure a certain amount once the person is verified. But, for crypto currency the entry would only be verified once the conditions are matched.
How Is Everything Done?
On the whole, there’s always a mechanism that rules the databases of digital currencies. Bitcoin comprises of a network of peers who keep a track of every transaction and a balance that’s maintained in the account. For instance, when it’s stated that ‘Jack offered X Bitcoin to Mary’ there’s nothing special about it. After the transaction is signed by Jack’s private key, the network receives an alert that the transaction has been successfully carried out. The message is transmitted from one peer to another. This is known as p2p technology which relates to a simple and straightforward approach. The entire network is aware about the transaction till the time it gets confirmed.
In case the transaction is not confirmed in some way or the other, it can’t be reversed. An individual can never attempt to forge by any way as it is now a part of a block chain, a detailed list of transactions. In such a scenario, the miner holds the responsibility of confirming the transaction and rolling it out as a legitimate one. Once the task is accomplished successfully, the miner receives a reward as a token of the digital currency.
Who Can Qualify As Miners?
Basically, everyone can be considered as a miner. Since the decentralized network is not authorized to delegate the task to someone else, the mechanism prevents the party from misusing cyber currency. The system would no longer be in its place when someone avails the right of creating many peers and spreading the forged transaction. So, to keep everything secure, individuals came up with the Proof-of-Work which connects the block with the predecessor. As for the Bitcoins, everything is dependent on the SHA 256 Hash algorithm.
It may not be useful to dive deep into the details of SHA 256. But, it’s important to be aware that miners would be finding a solution as the cryptologic puzzle seems to be challenging to crack.
Properties Of Digital Currency
Having understood what Bitcoin really is, the entries in a database are much beyond something that people can’t see and are governed by rules which many don’t know. Basically, the properties are segregated as ‘monetary properties’ and ‘currency properties’.
As soon as the transaction is confirmed, it can’t be reversed by a bank, or a renowned official or even a miner. Once the money is sent, you can’t get it back. You aren’t assured about safety even when the funds are transferred to a scammer or a hacker.
Since it’s known that transactions and accounts are not associated with real-world entities, bitcoins are received in form of addresses; chains which comprise of almost 30 characters. While it’s easy to analyze the flow, it’s impossible to connect with the entity once the address is completely understood.
Fast & global
Transactions are broadcasted instantly and confirmed within a few minutes. Since the word is spread across a network of computers, the location doesn’t really matter. An individual can send Bitcoins to the person living next door or to his friend residing in any other country.
There’s actually no way out to access the cryptocurrency funds since they are locked in a system. The owner can only send the currency with the help of a private key. The scheme can never be broken even if you have to play around with the numbers. As compared to Fort Knox, you really need a perception to crack the Bitcoin address.
In the end, cryptocurrency can be sent without seeking permission. A software is something that the person needs to download and thereby install on his or her system. Once done, you can either receive or send Bitcoins without someone keeping a watch on what you would be up to.
Most of the times, cryptocurrencies pose a limitation on the supply of tokens. The supply decreases over a period of time and eventually reaches to 2140. This implies that if you wish to know what’s going to happen in future then you can anticipate and calculate accordingly.
The system of the IOU really counts for the figure that appears on the ledger. While crypto currencies don’t denote debts, they can be perceived as money or simply gold coins.
In order to comprehend the impact, you should know that Bitcoins are irreversible as well as pseudonymous. Above all, you can stop someone to use Bitcoins, or make a payment or even reverse the transaction at any instance.
As the money can’t ever be changed by the government the currencies are prone to attacks. As the control is taken away, the monetary supply can be manipulated in some way or the other.
On a concluding note, the future of digital currency is much brighter. According to a CEO, two years hence, cryptocurrencies will be following a protocol for business transactions and other forms of payments. Since many people prefer buying Bitcoins, more companies realize the power of tokens and the evolution of block chain technologies. Nevertheless, cryptocurrency is never going to fade away when its existence is concerned. As time passes by, the acceptance and use is perceived to grow.