Cryptocurrency can be defined as a virtual or digital currency that is secured by cryptography, making it almost impossible to counterfeit or double-spend. It is a digital asset based on a network that is distributed across a large number of computers. This way the currency is outside the control of the government and central authorities. With cryptocurrency, there is no need to carry physical money as all payments and transactions exist purely as digital entries on an online database with absolutely no need to rely on banks to verify transactions. When transferring cryptocurrency funds, the transactions are recorded in a public ledger.
The word "cryptocurrency" came about because this type of currency uses encryption to verify transactions and secure the network. They allow for secure payments online denominated in the form of tokens which as said above are presented by ledger entries in the internal system
Is Cryptocurrency Secure?
Cryptocurrencies are built using blockchain technologies, which describes the way transactions are recorded in "blocks" and are then time stamped. It is a very complex and technical process but the result is a digital ledger of the cryptocurrency that can be hard to hack from outside.
The transactions further require a two-factor authentication, for example one might be asked to enter their username and password in order to initiate a transaction. Further you might be asked to enter an authentication code sent to you via sms on your registered number.
But this doesn't mean that cryptocurrencies can't be hacked. In fact, there have been several high-dollar hacks that have cost cryptocurrency startups heavily. For example in 2018, hackers hit "Coincheck" and "BitGrail for more than 500 million and 195 million reportedly, making these two the biggest cryptocurrency hacks of 2018.
Types Of Cryptocurrency
Bitcoin was launched in 2009 by a group who go by the pseudonym "Satoshi Nakamoto". As of today there are over 18.7 million bitcoins in the world with a total market cap of around 927 billion dollars.
Some other competing cryptocurrencies are - Litecoin, Peercoin, Namecoin, Ethereum and EOS. Today, out of 1.5 trillion aggregate value of cryptocurrencies in existence, bitcoin owns about 60% of the total value.
Advantages and Disadvantages of Cryptocurrency
Advantages:
- Cryptocurrencies hold the promise of making the transfer of funds easier between two parties without having the need to of a bank or a third party. The transfers are instead secured by use of different forms of incentive systems.
- In cryptocurrency systems, a user's personal information like - account address is public, while the private key is only known to the owner and is used to sign transactions when required. There are minimal to none processing fees, allowing users to avoid steep fees that is charged by banks.
- An advantage of the cryptocurrency is that it is decentralised, which helps the currency to be monopoly free. It also prohibits any other organisation to determine the value or flow of the coin keeping it stable and secure.
Disadvantages:
- The privacy and security of cryptocurrency transactions are high, making them decentralised meaning that the government cannot get information of the user to keep tabs on their data. Bitcoin has been used as a mode of illegal deals in the past, such as buying things of the dark web. It can also be used to hide the source of the illegally obtained money.
- Although cryptocurrencies are very safe and secure, most exchanges are stored in the wallet of users in order to operate their ID properly. This data can be used by hackers to get details about a lot of accounts. After getting access it becomes easy to transfer funds from those accounts.
- A major downside is that there is no refund or cancellation policy. If someone mistakenly sends funds to a wrong address then the coin cannot be retrieved or refunded. This can be used to cheat people by creating fake product or services.
- Mining cryptocurrencies require a lot of electricity input and computational power making it highly energy-intensive. For example, major bitcoin miners are in countries like China that use coal to produce electricity on a large scale, increasing the carbon footprint since bitcoin mining cannot be done on ordinary computers.
Still a lot of people see potential in cryptocurrencies despite the disadvantages, like decentralising without the control of the central banks and the government or preserving the value against inflation and facilitating easier and quick transport of funds.
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