What is Cryptocurrency?

Defination of Cryptocurrency

What is Cryptocurrency : Cryptocurrency means a digital currency in which transactions are verified and records maintained by a decentralized system using cryptography, rather than by a centralized authority.

In other words, Cryptocurrency is an encrypted chain of data strings where each such denomination denotes a unit, which is termed as a currency. This is a peer-to-peer network where there is no intervention of the Government or any Regulatory body which makes Crypto a free currency, free from any regulations.

Derivation of Word

Although the origin of the word is not certain in common parlance the word derives its meaning from different words. A few of such words are explained here

One is Kryptos, a Greek word that means “hidden or secret”. This goes well with the origin of Cryptocurrency in 2008 when Bitcoin was invented. To date, the secret is kept as to who is the original owner and originator of Bitcoin.

Also, the word Cryptography holds a significant contribution in the nomenclature of the word CryptoCurrency. Cryptography means “the art of writing or solving codes”. This word is probably the basic behind naming the currency. As in total it will mean “A Currency which is written in a Code”.

Concept of Cryptocurrency

Normally, any currency prevalent in the economy is launched and controlled by the respective Government of any Authority appointed by the Government. The Government hence ensures the flow of currency its valuation according to a set structure of policies and guidelines. Even the valuation of the currency as compared to other international currencies is adjusted by the Government by the implementation of various economic and monetary policies.

However, Cryptocurrency was generated out of a code. The concept of Cryptocurrency originated way back in 2008 when a code was written by someone. This code allowed a secured medium of holding a new currency (which was not regulated by any Government or Authority) by means of a code. Also, the structure of the code allowed a complete security mechanism from any sort of theft or burglary.

This made the currency an instant hit amongst the investors as this currency was free from any regulations or tax regime.

Also, the currency was independent of the economic development or downturn of any country, which made it distinct from any political moves or agenda. This derived more importance to the use of CryptoCurrency.

However, Cryptocurrency can be termed as a commodity or a medium of exchange that can be used as a currency to buy things or make payments.

Later on, Cryptocurrency was accepted as a mode of payment by many organizations and companies. This drove the value of cryptocurrency even higher.

Basis of Cryptocurrency (Blockchain)

The currency held by any person or organization is guaranteed by the Government. This makes the currency secure. However, the liquid currency in circulation (in the form of currency notes) is not secured by any means and, unless otherwise proven, the holder of the currency is considered to be the owner of such liquid currency.

On the contrary, Cryptocurrency is a free currency. The security of the currency is guaranteed by a technology called a blockchain.  Blockchain is a network of computers having the same history of transactions which is updated at every instance a transaction is made for cryptocurrency.

In the blockchain concept, the code through which the currency is generated is installed on multiple devices and doesn’t have a single server. This makes the currency very secure as any transaction or exchange of such Currency requires to be updated and validated through all such servers and computers. Therefore, if someone wants to steal one coin, that person will have to hack all such computers at the same to authenticate the transaction or the same will be deemed useless. This kind of system makes Cryptocurrency very secure.

In short, the digital ledger of the currencies is maintained and distributed to all the computers, thereby making it impossible to steal it.

Since such information cannot be accessed at the same time across the computers (called nodes) changing of the ledger and hence hacking of CryptoCurrency is impossible.

Although, there have been cases of theft of Cryptocurrency. But such theft is done from the wallets and not directly through a blockchain framework.

Regulatory Framework

A few countries like Canada & Japan have taken a proactive stance on Cryptocurrency and have accepted the same in the form of legal property and also an acceptable means of exchange. However, due to the lack of control over the functioning of Crypto Assets and their channels of exchange, the majority of Governments have not been able to form a regulatory framework.

Even the Countries like the USA, which has the highest number of Cryptocurrency investors and Blockchain firms, are finding it difficult to create a clear framework governing the CryptoCurrency Markets, except for norms on the taxation of the same.

Due to the inherent limitations and secrecy imbibed in the Crypto world and the transactions associated with the same, it will be a while before a clear regulation can be formed upon the same.

At Maximum, the Government can decide a taxation mechanism ruling for Crypto Transactions which will bring the transactions under control.

A detailed regulatory framework may take some time till the time Governments align their role of public welfare and keep pace with the technological changes simultaneously.

Problems in acceptance of CryptoCurrency

Cryptocurrency is being used in a number of transactions. Especially, a lot of large corporates have started accepting payments in the form of recognized Cryptocurrencies. This has started a new era in the financial world where people are not bothered about using money to buy things. Instead, they can use virtual currency.

But since the medium of money transaction is not under the control of the Government, there is no regulatory framework to enforce such transactions.

Also, by giving recognition to Cryptocurrency, the Government will be promoting another parallel currency, which is not even under the control of any other Government.

Underlying risks Involved

Also, the biggest problems lie in the form that a person can earn in Cryptocurrency, can spend in Cryptocurrency, and can make assets by paying in CryptoCurrency. All these transactions will go out of the radar of the Government and there will be no record of things. However, in such a case if one of the parties to the transaction cheats the other party, there is no legal help or protection available as the medium of exchange, which in this case is Crypto Currency, is neither recorded nor is it recognized to be upheld in the court of law, by the Government.

Also, by the use of such a currency, which has a Market Capitalization of more than a few small countries combined, we are giving enormous power in the hands of freelancers to topple or uplift any economy without any careful political forethought.

Again, we have all seen the impact of individuals on this highly volatile market. In the recent past, a few tweets from Mr. Elon Musk led to a substantial change in the price of a few Cryptocurrencies. This indicates that with increased usage of Cryptocurrencies, we will be moving towards an economy driven by sentiments rather than an economy based on solid fundamentals.

And, in the end, the rich and influential people are to gain by such tactics. The small investor shall always bear the brunt of any such upswing or downswing in the market.

Another risk involved in the incomplete information available about the individual Crypto Assets and Market Dynamics. This is the part that coin gabbar is willing to resolve by providing fair and transparent information, research, and analysis about Crypto Assets.

Whether to Invest or not?

This is a dynamic world and we are living constantly living under the fear of being left out. This tendency drives us to do things that may or may not be good for us.

The recommendation, in this case, is to assess your risk appetite, decide only a certain amount to be invested and then choose the right knowledge partner to make informed decisions in this dynamic world.

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