By Avinash Shenoy, UK
In response to reader feedback to previous articles, this article aims to introduce cryptocurrencies in a simple way.
What is a Cryptocurrency?
Bitcoin and the other 1,100+ Coins listed on the site Cryptocurrency Market Capitalizations are digital forms of currency known as a cryptocurrency. They have been created for the same purpose as the currency used in the physical world, e.g. $, £, INR, that is, as a medium of exchange.
Where they differ from regular currency is that they are designed to use the principles of cryptography to exchange information over the internet to enable secure transactions, and to create new currency which are commonly called coins.
In 2009 Bitcoin was the first cryptocurrency created and is by far the most widely known. The other Coins that came after it is generally called Altcoins as they are Bitcoin Alternatives due to the fact that they either claim to improve upon or change a Bitcoin feature.
An important feature of a cryptocurrency is that they are Decentralised. This means that to use them there is no central authority such as a Bank involved. Also, no central authority such as a Government controls a cryptocurrency.
All cryptocurrencies run on a public distributed ledger system called the Blockchain, which keeps a record of which coins have been spent and which have not. All transactions on the Blockchain are recorded in chronological order and made publicly known.
In addition, the Blockchain solves what is known as the double spending problem. Because a cryptocurrency is digital you could make multiple copies and spend it many times. However, because every transaction is recorded on every computer on the network across the globe it ensures that this problem is avoided.
It is important to note that due to its Decentralised nature, cryptocurrencies are largely unregulated. This has been welcomed and is considered the future by many. However, it does have a downside in the form of scams, tax evasion, and money laundering. With this in mind, proposals for the regulation of matters surrounding the technology by various nations such as India and Abu Dhabi have recently featured in the news after Japan’s recent success. A comprehensive report was recently released by Axon Partners in conjunction with ForkLog Consulting which details the state of global cryptocurrency Regulation.
In other news countries such as Dubai and Russia have gone down the path to creating their own Government issued cryptocurrencies.
For a visual history of the two most well-known and important cryptocurrencies, follow these links: Bitcoin and Ethereum.
This is an Infographic which compares features of the most well-known cryptocurrencies.
The Cryptocurrency and Traditional Market Exchanges
Traditional Markets primarily deal with forex, stocks, futures, bonds, and commodities.
Cryptocurrencies have also created their own markets and the most comparable market to this one can be said to be the forex. However, there is still debate among regulators about what they actually are.
Description of Traditional Markets:
Please note: to run these accounts you would usually need the services of a broker and in addition to the minimum deposits there would be an associated fee with them.
Comparison of Cryptocurrency and Traditional Markets:
Blockchain technology can always be applied to in the traditional markets. For a visual on how this technology can impact the stock market, this Infographic provides a useful insight.
What’s next?
This article has covered the basics - What a Cryptocurrency is and how it compares to a Traditional Market.
The article to follow soon intends to explore areas like how to get, store and look at ways to trade cryptocurrencies.
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