CRYPTOCURRENCY: ALL YOU NEED TO KNOW
“Bitcoin jumps as Elon Musk says Tesla may use crypto in future”-Mint.
This news came in as soon as Elon Musk tweeted about his company planning to resume transactions with the cryptocurrency in the future provided that mining is done with more clean energy. While most of us might have read this news, I presume only a few of us have captured the essence of Musk’s tweet.
That's the thing with cryptocurrency. In recent years, we have been hearing this term on and off. Chances are we might have read/heard about it in relation to digital currency or bitcoins. Now let us contemplate: do we have a precise if not at least an appreciable understanding of what it is and how exactly it works?
Cryptocurrencies are nothing but a digital form of currency. Unlike notes or coins, they do not exist in any physical form. Instead, they act as a digital token that represents some value. They are created by software code and then stored as encrypted data in a blockchain, which is like a permanent database.
Now that we know what it is, let us dig deeper to see when and why it came into existence. From the late 1980s, there were many attempts in creating a digital currency. But all of it failed as one thing came in the way as a jigsaw puzzle- centralization of the transaction verification process. It was in 2009, with the arrival of Bitcoin, backed by brilliant coding that solved this problem. Bitcoin was developed by an anonymous programmer/group of programmers under the codename Satashi Nakamoto. To date, Bitcoin holds the title of the original and most popular cryptocurrency.
What makes cryptocurrency unique and why does it stand out amongst others? Transactions involving cryptocurrency significantly reduce the transaction cost as cryptocurrency does not involve the use of a third party, such as the bank which we normally depend to carry out monetary transactions. It might seem negligible, however, we must understand that transactions of hundreds/thousands of millions of dollars involving cryptocurrency(bitcoin) which have been carried out to date have been done with total transaction fees being only a few dollars. Had we done it using our traditional banking system, this wouldn't have been possible. This feature makes cryptocurrency the most innovative. Because of its growing importance, bitcoin has been referred to as digital gold. Besides bitcoin, other prominent cryptocurrency projects are Ethereum and Dogecoin(amongst many).
Whether or not it is advisable to invest in them is heavily dependent on which cryptocurrency we choose along with the time frame in which we choose to invest in. Moreover, cryptocurrencies are sensitive to higher levels of price volatility as compared to stocks, which is also one of the principal criticisms of cryptocurrency.