So What Is Cryptocurrency?

A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Cryptocurrencies can be decentralized or centralized networks and they are all based on blockchain technology. Now blockchain technology is a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.

Cryptocurrencies are systems that allow for secure online or mobile payments which are denominated in terms of virtual “Tokens or Coins,” which are represented by ledger entries internal to the system. “Crypto” refers to the various encryption algorithms and cryptographic techniques that safeguard these entries, such as elliptical curve encryption, public-private key pairs, and hashing functions.

The first blockchain-based cryptocurrency was Bitcoin, which still remains the most popular and most valuable. Today, there are thousands of alternate cryptocurrencies aka Alt Coins with various functions and specifications. Some of these are clones or forks of Bitcoin, while others are new currencies that were built from scratch.

Bitcoin was launched in 2009 by an individual or group known by the pseudonym “Satoshi Nakamoto.” As of March 2021, there were over 18.6 million bitcoins in circulation with a total market cap of around $927 billion.

Some of the competing cryptocurrencies spawned by Bitcoin’s success, known as “altcoins,” include Litecoin, Ethereum, XRP,  Pecu Novus, Peercoin, Cardano, and EOS. Today, the aggregate value of all the cryptocurrencies in existence is well over $1.5 trillion, where Ethereum and Bitcoin represent well over 65% percent of that total value.

Fun Fact: Some of the cryptography used in cryptocurrency today was originally developed for military applications. At one point, the government wanted to put controls on cryptography similar to the legal restrictions on weapons, but the right for civilians to use cryptography was secured on grounds of freedom of speech.

Advantages

Cryptocurrencies have the ability to make it easier to transfer funds directly between two parties, without the need for a trusted third party like a bank or credit card company. These transfers are instead secured by the use of public keys and private keys and different forms of incentive systems, like Proof of Work or Proof of Stake. They are peer to peer systems that avoid costly banking fees and give an individual the ability to perform secure transactions immediately without the interference of a bank or third party.

Cryptocurrency account holders have a digital wallet, basically its like a bank account but for their cryptocurrency.  They have a private key which is only viewed by the owner of that wallet and a public key that is used to perform transactions. On solid systems this public key has the ability to be changed to avoid potential fraud. Fund transfers are completed with minimal processing fees, peer to peer transactions should hold zero transaction fees, this allows account holders to avoid the steep fees charged by banks and financial institutions for wire transfers.

Disadvantages

The semi-anonymous nature of cryptocurrency transactions makes them well-suited for a host of illegal activities, such as money laundering and tax evasion. However, cryptocurrency advocates often highly value their anonymity, citing benefits of privacy like protection for whistleblowers or activists living under repressive governments. Some cryptocurrencies are more private than others.

Bitcoin, for instance, is a relatively poor choice for conducting illegal business online, since the forensic analysis of the Bitcoin blockchain has helped authorities arrest and prosecute criminals. More privacy-oriented coins do exist, however, such as Dash, Monero, or ZCash, which are far more difficult to trace.