Technology

Cryptocurrency — All That One Must Know

On December 2017, Bitcoin reached its highest recorded value of $19,140.17 per bitcoin. This showed an astonishing return for the amount of money invested. This event placed Cryptocurrency on the map. Not many people knew what it was or how it was traded or from where the surge of investments occurred. Cryptocurrency is essentially a digital or virtual currency which was designed to act as a medium of exchange. It uses the process of cryptography to secure and verify transactions involving cryptocurrency. It is also used as a means to control the creation of any new units of cryptocurrency. All the various currencies are stored in a database with limited entries. No change can be made in the database without it fulfilling certain specific conditions.

Initially there were attempts in the 90’s to create digital currency, during the technology boom. However, most of those attempts failed. Systems like Beenz, Flooz and DigiCash entered the market but failed due to many reasons like fraud, friction between the employees and financial trouble. There was a change in the scenario in early 2009, when an anonymous group of programmers introduced Bitcoin under an alias Satoshi Nakamato. They described it as a ‘peer to peer electronic cash system. However, the process is completely decentralised and there are no servers involved and no central controlling agency. A common problem with payment networks is double spending. It is a fraudulent method through which the same money is spent twice. The usual solution is to have a central server which records all the balances and transactions which take place. This needs an entity to be in control of the funds. Bitcoin works on a decentralised network called the Blockchain which is a public ledger of all transactions that happened on the network. Each transaction is stored as a file that consists of the sender and receivers respective wallets and the number of coins is transferred. The sender must approve of the transaction using his private key. This is the basic form of cryptography. A cryptography network is based on the consent of all the participants regarding the balances and amount of transactions. If someone disagrees on any single balance, the entire system would collapse. There are safety measures in place which exist to prevent this from happening.

Nowadays, cryptocurrency are widely accepted for several purposes. Bitcoin is now accepted as a form of payment. It is used from small local shops and restaurants to online retailers like Newegg and Overstock. It is even used to pay for flights, hotels, jewellery and even college degree. There are certain marketplaces which accept only cryptocurrency like OpenBazaar and Bitify. In the recent times, cryptocurrencies are the hottest investment available. The most popular and recognised of them all is Bitcoin. The second most valued cryptocurrency is Ethereum. It has recorded the fastest rise any digital currency any digital currency has. Since May 2016, its value has increased by at least 2700 percent. Though, high returns are expected from this form of investment, it is highly volatile. The market value of the currencies, fluctuates very often unlike any other investment avenue. Just like trading, mining is also an investment. Miners are bookkeepers who provide service for their communities. They help in solving the cryptographic puzzles, which is necessary to confirm a transaction and to record it in the public ledger. The difficulty of solving the puzzles is constantly increasing as the number of people trying to solve it increases. Several people have made a huge fortune by mining for these bitcoins. For beginners to invest, Litecoins, Dogecoins and Feathercoins are the best in the market for beginners.

As cryptocurrencies are becoming more and more popular, law enforcement agencies, legal regulators and tax authorities are trying to comprehend the concept of crypto coins and how to conform it to the existing frameworks. The introduction of the decentralised system however, caused a complete shift in the dynamics. The lack of a central authority and the anonymity of the transactions raised a lot of concerns. The most alarming of them all is that it would appeal to illegal activities. Tax evasion and money laundering can be done using the decentralised system. Presently in India, the currency is not recognised as a legal bill of exchange. However, mutual buying and selling of the existing coins between peers is allowed. The introduction of Bitcoin and its sudden hike in the return has opened up an entire new avenue of investments.

Picture Credits : venturebeat.com



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