Cryptocurrency : A trend of globalization

“ An intelligent investor sees the opportunity, in an ocean of risks, as opportunity does not come gift wrapped, risk is inevitable!”

Cryptocurrency is nowadays highly debated, a fascinating, emerging term which has become a buzzword in financial investment to political scenario. Let’s look at the very idea of cryptocurrency, often denoted as digital currency.

Cryptocurrency as it’s name suggests Crypto means secret and currency stands for medium of purchase of goods and services

What is cryptocurrency?

Basically, a cryptocurrency is a digital token, designed to work as a medium of exchange, or a method of record keeping. It uses cryptographic algorithms to secure and verify transactions across it’s network. It is a decentralised currency used to transact on blockchains.

Let us understand in layman terms analogously.

Money is the representation of certain worth or value, legitimised by central authority or government institution or any trusted third party.

In India all financial transactions are taken care of by the Reserve Bank of India. Nobody in the world can have exactly the same note as you are having, and when you transfer or give it to someone , you lose it in exchange for something worth this value. You cannot hold it and give a copy of it. You can just copy a file and share it with someone. But not money, currency is fixed in all respects.

So how does digital currency work? It actually operates by a network of computers, where anybody from anywhere can join the network,and you can have a unique representation of your value using cryptocurrency on that network. That network is blockchain in simple terms.

For instance if you hold a bitcoin, no one in the network can hold the same bitcoin (bitcoin is an example of cryptocurrency), and you cannot simultaneously share it and have the possession.

We can simply represent a unique value we are holding with the help of an internet connection and are able to make transfers of these values to others without using an independent third party organisation. This is the concept of decentralization.

Cryptocurrency is a mathematical equation which is transferred from peer to peer. This equation is decoded by software and people started trading this as a barter system in exchange for goods and services which gave these cryptocurrency a value.

But how is this to be done? How without regulation, a large system functions smoothly, what about transparency and frauds? Lets answer all these queries.

Cryptocurrency such as bitcoin is operated within a network of computers, and a database of all the transactions that every participant makes in the blockchain network has a maintained record on different nodes across the blockchain. It is referred to as peer to peer transfer as third parties have little to no interference.

Reconciliation of the balance is automatically done by the network and verification of transactions made inside the network is done by other participating entities which are called minors, and the process is mining. And the database stores in a public ledger, it takes into account all the transactions. However, to avoid privacy issues, it is encrypted through cryptography. Cryptography is the science of protecting information by transforming it into a secure format.

So without having a central third party authority, you are able to represent your worth and be able to transact it to anywhere globally. Hence it is also a significant move towards globalisation and an expected option by multinational companies and even individual investors.

Although the Indian government has not yet accepted it as a legal tender of money,it allows people and parties to hold trade and invest in cryptocurrency. You just need an internet connection and a device to do that .

Now comes the point that why has the demand been increased recently ?

It’s divisible into n number of parts so a small amount of transaction is also possible, it gives flexibility to investors.

It’s very easy to carry, so one does not have to carry a lot of cash and can easily transact as what one requires is just an internet connection in their system, and they can have access to their concealed cryptocurrency wallet.

It can be transferred in any part of the world within a few seconds with a very small transaction fee, hence it gives a faster and efficient alternative .

So the sum and substance is, cryptocurrency is a radically new way of paying that makes all the transactions secure and helps to get rid of intermediaries represented by banks or any other central authorities, which also contributes to a significant reduction in the commission charges. . The security in cryptocurrency is provided by Blockchain technology which refers to a network of computers having an identical copy of the database( transaction information in coded secret key format) and changing its records based on pure mathematics. This is a new technological advancement and financial revolution.

Cryptocurrency is not just a digital currency but it is going to be a global currency.