What is Cryptocurrency?

Cryptocurrency is a digital currency with data and transactions stored using blockchain technology.

Simply put, this is a digital peer-to-peer currency exchange, meaning that no bank holds the “funds” and the cryptocurrency is not tied to a physical currency.

Because of the decentralized and immutable data storage, cryptocurrency is secure and nearly impossible to counterfeit. The most popular and valuable cryptocurrency is Bitcoin which was introduced in 2009 and accounts for about 68% of the world’s cryptocurrency, but there are hundreds of others that can be “mined” and traded. 

The security and anonymity of cryptocurrency trading makes it safe and easy to transfer funds between parties. Each account has a public key that can be found to initiate transactions, and a private key that is known only to the owner and is used to authorize and authenticate transactions. Transaction information is stored using blockchain technology and is irreversible and unchangeable. 

However, this technology and valuable currency is not without disadvantages. The unregulated and anonymous nature of the transactions makes cryptocurrency susceptible to illegal activities such as tax evasion, money laundering and the purchase of illicit substances. Not to say that physical currency is immune to the above activities, even when highly regulated.

Cryptocurrency also has a historically volatile value as it is based on supply and demand. Exchange transactions can be done between cryptocurrencies, much like trading on the stock market, leading to wide fluctuation in their value. Now that cryptocurrency has been available for over a decade, it’s value has started to stabilize and is being used more by the general population. While physical currency can be printed and created, cryptocurrency is publicly viewable through the blockchain where the data is stored and the currency is “mined” through a painstaking process. The mining process takes a significant amount of time and is not something the average consumer typically would endeavor or have the equipment and expertise to do. The limited supply of cryptocurrency also makes it more difficult to cause inflation as there are only 21 million Bitcoins that can be mined, whereas physical currency can simply be printed, leading to inflation. 

The actual value may fluctuate, much like the stock market, but the technology used to facilitate the transactions is extremely secure. The use of cryptocurrency also facilitates easier and faster transactions between parties as there is no middleman or bank overseeing the transactions and charging transaction fees. Further, cryptocurrency accounts and transactions are more protected from cybersecurity threats and exploits due to the use of blockchain technology.