Summary:
Cryptocurrency
Name
Institution
Summary:
Cryptocurrency
Cryptocurrency
provides a virtual medium of exchange that exists outside the government’s
monetary policy. The currency is built on cytographic protocols that enhance
data protection. The process of developing the cryptocurrency began in the
1980s when David Chaum came up with an algorithm that was secured and
unalterable
(Martucci,
n.d.). Chaum then developed a company named DigiCach in Netherland, but it
collapsed in 1990s (Martucci, n.d.). This was followed by the publication
of a white paper that outlined the b-money architecture by Wei Dai. Chaum used
the blockchain system to develop Bit Gold, but the cryptocurrency did not gain
traction. Bitcoin was then outlined in a 2008 white paper and released to the
public in 2009
(Martucci,
n.d.). The initial success of Bitcoin paved way for the development of other
types of cryptocurrency, such as Ripple, Ethereum, and Dogecoin.
The
value of cryptocurrency is expressed in the form of units that are stored and
validated in the master ledger. Users are provided with a finite number of
transactions. Cryptocurrency is a decentralized form of currency that is
operated by miners with sufficient computer knowledge. The role of the miners
is to record and authenticate transactions, which happens continually.
Transactions are completed once they are added to the blockchain after which
they become irreversible. Private keys are used to authenticate the
cryptocurrency users. The units owned by users are stored in the virtual
wallets.
The
use of cryptocurrency has advantages as well as disadvantages. The key benefits
of this medium of exchange include the built-in scarcity, loose government
policies, effective quality control as well as policing, and anonymity enjoyed
by users. In addition, the virtual currency makes it difficult for the
government to impose financial restrictions and it is associated with lower
transaction costs compared to traditional currency and fewer barriers when
carrying out international transactions. However, there are several drawbacks
associated with the cryptocurrency. The major ones include the risk of
volatility, tax evasion, data breach, lack of refund options, adverse impacts
on the environment, and the difficulty of exchanging it with the fiat
currency.
Although
there are many types of cryptocurrency, Bitcoin is the most common one. Some of
the key factors that made Bitcoin popular include the high level of security
that enhanced the sense of safety, appreciation rate, and its acceptance by
well-established companies as a medium of exchange. In addition, Bitcoin is
classified as a decentralized digital asset, which has enhanced convenience in
its used.
Reference
Martucci,
B. (n.d.). What is cryptocurrency-how it works, history & bitcoin
alternative. Retrieved from https://www.moneycrashers.com/cryptocurrency-history-bitcoin-alternatives/
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