Cryptocurrency is digital coins or assets that are used as a medium of exchange. It is also the latest growth of digital money, which is not controlled by central authorities but by a network of equally affluent participants, followed by an agreed set of rules. Each currency and assets have different technology behind it. Cryptocurrency is divided into three primary forms, which including- coins, assets, and tokens.
It has recently captured the headlines in the financial market, which can be managed using encryption techniques, “cryptography”. The concept of cryptocurrency has influenced many entrepreneurs across the world to form a start-up focused on technology and providing infrastructure for mining and trading activities needed for such currencies. However, the market created by entrepreneurs in this domain looks exciting and sometimes mysterious.
Types of Cryptocurrencies
In general, there are two types of cryptocurrencies- decentralized currency, and centralized currency.
- Decentralized Currency: These types of cryptocurrencies are generally issued by non-profit making organizations, where the fields are leveled for all to participate. Bitcoin is an example of decentralized cryptocurrency. All are allowed to participate in this network, receiving funds or become a miner, without the need for request permission. These specific decentralized cryptocurrencies are entirely transparent, censorship-resistant, and open to all. However, it is crucial to note that some cryptocurrencies are also developed as decentralized. But they are centralized as not enough people are participating in their network. Therefore, it permits the decentralized platform to actively controlled by a small number of participants as true decentralization is a matter of design and adoption.
- Centralized Currency: These types of cryptocurrencies are issued by a profit-making organization that also established its protocol, and determines who can participate in the network. Stablecoins and Ripple are examples of Centralized Cryptocurrencies. These are considered as an upgraded version of traditional fiat currencies, as they are prone to the risk of centralized management like negligence, and fraud.
Properties of Cryptocurrencies
- Fast and Global
Instant transactions are broadcasted in this network with confirmation in a couple of minutes. It is stated that the transaction takes place within a network, and your physical location holds no importance.
Once the transaction is confirmed, it cannot be reversed at any cost. It has similarities with transactions in the equity market, where once the broker placed the order, it cannot be changed.
The assets are locked in a public key cryptography system, and only the owner of the key is allowed to access it. The big number sequence makes it almost impossible to break the security.
- Not Connected with Real World
Unlike in the case of a bank account of mutual funds, customers are offered with an account statement detailing the transactions with a unique identifier defining an individual. But there is no such provision in cryptocurrency. While one can track the transactions flow but it is hard to link with the real world identity with those long addresses.
- Permission Not Required
It works with software that is freely installed. After downloading the required software, an individual can start to transact in it. There is no permission needed in cryptocurrency and no one to stock.
Hence, cryptocurrencies are future evolution in digital assets. Money has traveled a long-way from commodities to coins, papers, and finally in digital form, which is controlled by a central authority. Currently, in the next phase of advancement, money became decentralized through the use of cryptocurrencies.