Good Day! This article is structured to provide a kind of knowledge on Digital Currency or Cryptocurrency. My only assumption is that you have some basic knowledge on Security Trading and Products. We can recap our understanding on Money & Currency concepts for starting with this article, but for understanding Digital Currency, we must have high-level knowledge on Security Trading, Information Technology and Infrastructure Services.
INTRODUCTION
Money is anything which is accepted as medium of exchanging goods and services. Money can be largely categorized or grouped as the following.
Type of Money
- Commodity Money
- Fiat Money
- Fiduciary Money
- Commercial Bank Money
Right! We have come to our topic! Countries
which are mainly dealing with Currency as medium of exchange must have
Regulations and Regulatory Authorities to manage them. But Why! There are
plenty of reasons and the most important is to keep the value by comparing other
countries or currencies. In high-level, Regulatory Authorities have responsible
for currency transactions, control over the banks, inflation monitoring and
cash flow. In India, Reserve Bank of India (RBI) is responsible for those
actions for Indian Rupee.
Points To Be Taken:
- Money/Currency is controlled by some authorities
- Physical/Electronic Currency flow is monitored and regulated
- Banks play major role on Money flow
- Money/Currency value is always compared
CRYPTOCURRENCY
It is the latest Money/Currency which does not require you to know anything about it for start-using like how you are now using your Credit Cards and Money Transfer Applications. If you really want to know what Cryptocurrency is & how it works, you should read about Digital Currency, Block Chain and Cryptography.
Right! Let’s understand what Cryptocurrency is!
Cryptocurrency is one form of
digital currency like Debit Cards, Credit Cards & Mobile Digital Wallets,
where all transactions are recorded on a digital ledger called Blockchain, and
every process or transaction is secured by cryptography which protects reading
& understanding the digital transactions from public or third-party. Got it? I assume No!
Unlike other Digital Currencies, Cryptocurrency
only exists in Computers and it does not require a regulator or middle man to
monitor the transactions. Then how client accounts are maintained and how transactions are secured! First,
we should understand what Blockchain & Cryptography are, from common-man perspective.
Get Into Information Technology
Have you seen Blockchain video? No! Okay! Blockchain is an advanced Information Technology concept which can also be referred as Digital Ledger Book. Ah Wait! Digital Ledger Book & Decentralized! What does it mean!!
Account Balance and Transaction
Details of Cryptocurrency user is stored and maintained in various electronic Blockchain
host around the world. All Blockchain hosts are synchronized with same
transaction details on every Cryptocurrency transaction made. Just imagine
how efficient the communication would be! It is the biggest opportunity for Information
Technology Service Providers to deal with Cryptography and Blockchain. Miners (We don’t worry about them now) keep
adding Blocks for each transaction and get paid for their service.
Adding new Block concept for each
transaction creates complexity to the hackers & thieves to steal digital currency.
Don’t believe me! It’s quite simple. To make it more complex, this is the right time to read about
Cryptography, an ancient encryption and decryption technique for secured
communication.
If you say Blockchain is the
back-bone of Cryptocurrency, then Cryptography is the brain. I don’t want to
discuss other organs in this article. Let's take Hash which is one of the cryptography methods known as One-Way Cryptographic Codes used by major Digital Currencies.
Core idea of Hash is "Easy to compute one-way but hard to compute
other-way". If I give this example, you will understand about “Hash”.
“Creating Complex Password for your
Google Mail is so easy to you but it is very difficult to hack your Gmail Account”
Right! “Simple Passwords can be created easily and hacked easily”. Do you
believe in that? Good! It is the Hash technique. Here, third-party cannot decode
the encrypted transaction which is associated or coupled with Block. Finally, I
related Blockchain and Cryptography.
Now you may agree with the
followings
- Cryptocurrency is available only in digital format
- Transactions are safe & secure even there is no regulatory authority
- Many Blockchain hosts are maintaining Customer Accounts and Transaction Ledger
- All transactions are added as Blocks with Hashes
How Cryptocurrency Works?
- User must have an account with Cryptocurrency Provider
- User can login into Wallet and transfer Cryptocurrency to other peers
- Transaction details will be sent to all Cryptocurrency Hosts / Blockchain Hosters
- Miners (Don’t Worry About This Term Now) add this transaction as Block in Ledger along with Hash
- Transaction Blocks are broadcast to other Hosts and Cryptocurrency Amount is settled
Quite Simple! Quite Easy! Information Technology Works Here!!
Advantages
- Transferring one account to another account without Bank or Clearing House
- Lower Account Management and Transaction Fee
- Cryptocurrency can be used in every country
- Digital Currency Account cannot be closed or frozen by anyone
- There are no transaction limits
Limitations
- In current situation, Cryptocurrency is so volatile and uncertain
- Still many corporate are not accepting Cryptocurrency as medium of exchange
WORKFLOW OF CRYPTOCURRENCY
How Can I Get Cryptocurrency?
Cryptocurrency is one of the
currencies which is only available in digital form. Again I am telling the old story!
There is a reason behind it! How you can get US Dollars if you are in India.
Yeah! You can get paid for selling your good or service in the form of
Cryptocurrency. You can trade your good or service against Cryptocurrency. And
you can buy Cryptocurrency by trading your currency. Now you have Cryptocurrency
in your Wallet. Got It!
Cryptocurrency Exchanges
There are Digital Currency
Providers (DCP) who are directly connected with Digital Currency Exchanges
(DCE) to facilitate Cryptocurrency trading and settling. DCEs are typically running
with matching algorithms like other Security Exchanges and Commodity Exchanges.
There are many Independent Cryptocurrency Exchanges which are not linked with
DCPs however they allow customers to trade Cryptocurrencies or Digital Currencies
for their Assets, Fiat Currency and other Digital Currencies. The following are
the top list of DCPs which are operating in different countries.
- Bitstamp
- Bitfinex
- Coinbase
- Cryptsy
Top Cryptocurrencies
We have almost covered all basics
of Cryptocurrency and how they are secured and used by the stakeholders. Now I
will list few popular Cryptocurrencies which have higher trade volume in the
DCEs.
- Bitcoin
- Ethereum
- Ripple
- Litecoin
GENERAL CRITICS & THOUGHTS
Most of the criticisms come forward
because of not believing this new digital currency transaction model without any
regulatory. Yes! It is still tricky! From my perspective, it is a usual fear as
how people did not believe on Paper Currency Note, Derivative Contracts and
Index Funds when they were released. But I think that regulation can also be considered or required to control the volatility and
security. You can see the top list of criticism below.
- How Cryptocurrency is backed? What would happen if the value is lost?
- Will government try to kill Cryptocurrency?
- What will happen if users do not show interest on Cryptocurrency?
- Why Cryptocurrency cannot be taken for Regulations?
It’s fine because I don’t need to lose
my money by entering in Cryptocurrency world without proper analysis. See the video what experts think about this!
What do you think? Are you with Warren
Buffett?
I am definitely Not with him. As a
successful investor, he is correct. I am a technology guy who knows to adapt
with rapid changes so I believe that Cryptocurrency will create big impact in
our traditional fund transaction world. It may not be Bitcoin or Ripple but it will be Cryptocurrency.
CONCLUSION
Thanks for reading my article and I
appreciate your patience & interest. Feel free to post your queries. I
remember that I have skipped few concepts purposefully to avoid over-dose while
trying to understand basics. I have planned to provide two more articles in
Digital Currency to explain about “Information Technology Requirements” and “Investment/Trading
Techniques”. I will cover those skipped concepts then you can connect all dots.
References
