Cryptocurrency is a digital asset that is mainly used as a medium of transaction to secure financial transactions, control the creation of additional assets and verify any transfer of assets with the help of strong cryptographic technology. It is also known as a form of digital currency or virtual currency. Unlike central banking systems, it is a decentralized system of control and financial transactions that works through blockchain that is mainly used for financial transactions.
The first decentralized virtual currency that was developed in 2009 is Bitcoin known as a virtual monetary unit and it works independently without the help of any central bank or administrator. Since then, about 4,000 altcoins of different bitcoin variants have been developed. Bitcoin is considered a peer-to-peer electronic cash system where users transact directly without any intermediaries.
Blockchain is a data file consisting of numerous blocks that keeps records of all previous bitcoin transactions, as well as the creation of new ones. The normal average time between each block is about 10 minutes. The most common use of bitcoin is supported by external software called Bitcoin wallet. By using this software, it is possible to easily store, receive and manage transactions of bitcoin units. To transact using bitcoin, one needs to have an account at any of the bitcoin exchanges around the world and fiat currency must be transferred to that account. Therefore, the account holder can make future transactions using these funds. Apart from bitcoin, some of the other sources of cryptocurrency is the petro which is mainly used for oil and mineral reserves.
There are some advantages and disadvantages associated with the use of digital currency. The main advantages of using virtual currency are as follows:-
• Provides a quick layer of transparency:-
Bitcoin usually works with the help of a ledger called Blockchain that records and tracks every transaction. Once a transaction is made and recorded in this ledger, it is considered static. These transactions can be further verified at any time in the future and therefore additionally ensures security and privacy regarding all transactions made through a particular account.
• Fast processing and portable use:-
Billions of dollars in bitcoins can be easily transferred from one location to another without any detection with the help of a single memory stick. While performing any type of transaction, the involvement of any third party can be eliminated by using this bitcoin technology. This will result in a simple and fast transaction without any third party approval,
• Low transaction costs included:-
The transaction costs involved in exchanging these digital currencies are very low making them more affordable than real currency for the population around the world. Therefore, the cost of any type of transaction done is very less, which turns out to be an advantage for the population whenever they do any transactions.
• Fights and eradicates poverty:-
Often the banking systems and financial institutions do not provide help or assistance, especially to the backward classes in rural areas. Bitcoin serves as an alternative in such cases as it extends its robust financial services to anyone with access to the Internet. It often serves to support the poor and oppressed classes who in most cases are not given any viable alternative.
As and when new or latest technology comes, there are some negative factors associated with its use, which are:
• Ignorance and distrustful attitude of the population:-
Due to the lack of knowledge about the digital currency, people are more likely to become distrustful of its widespread use. Therefore, there are very few business systems that accept these sources of cryptocurrency, which limits business systems that prefer to use virtual currency in their daily transactions.
• Untraceable transactions:-
Since transactions made with bitcoin are untraceable, it provides scope for criminal transactions. In such cases, drug dealers and scrupulous people are the ones who use such virtual currency so that their illegal activities are not easily detected.
• Changing and uncertain nature:-
Cryptocurrency is sometimes volatile and continues to change frequently on a large scale. Sometimes people earn quite a lot of money when the market rates of these virtual currencies skyrocket and sometimes they also face a huge loss when the price falls.
Cryptocurrency is an innovative but amateur concept that can potentially disrupt the entire financial market. It is true that this digital currency has caught the attention of the world in a short time. There are always pros and cons to any new technology that hits the market. In order to make the most of it, it is necessary to look at both sides before making any decision.