Cryptocurrency for Dummies

We know how currency works. A physical currency. Something which you can hold and feel. You exchange that for goods, of that particular value. If you extra currency, you store it in the bank. So you go the financial institution, stand in a line and when your time comes to meet the teller, you hand over the currency or the set of currencies to him or her. The teller will go ahead and deposit it in your bank account. Job well done. Some transactions are made online where currencies are transferred directly to your bank account. When you wish to take them out, you will either visit a bank or the nearest ATM.

Now, ponder for a moment. The common thread running through the above scenario is the physical currency. And we take it out. Transform the currencies into digital cash. And instead of a physical bank account, all you get is a Public Key and  Private Key. A public key to make a transaction to another individual and private key to access your own wallet or account.

Welcome to the world of Cryptocurrency. The name suggests that this is a digital currency that is encrypted.

So how is this different from the conventional currency that we use.

For starters, we cannot feel it. It is based in the digital medium and operates through the internet.

Secondly, and one of the prime reasons why cryptocurrencies are popular, is the absence of a bank or a financial authority. The transactions take place between two individuals sans any authoritarian oversight.

Because of the above point, there is nil unnecessary bureaucracy and hence no delay or cost for transactions.

Bookkeeping is in the form of an immutable ledger or block since I’m this idea stands on the premise of blockchain. Every transaction creates a separate block and can only be accessed by the rightful owner.

One can hedge one’s investment against future Doller fluctuations.

Is it safe?

Well like everything that is technology-based will have its downsides.

Cryptocurrencies are prone to hacking. Hot wallets, the ones linked to the internet are susceptible to the machinations of hackers. Cold wallets, those which are not linked to the world wide web are hacker-proof but have their own challenges.

If there is a crash in the system and no backup is taken then the ledger would be lost forever.

Some of the high performing cryptocurrencies are Bitcoin, Litecoin, Etherium et al