A cryptocurrency is a decentralized currency that exists on a distributed ledger, i.e., a blockchain, an OSS (Open Source Software). Here, information on each transaction, which gets a unique identity (hash), is added to the end of the blockchain. The term “crypto” refers to ‘cryptography’ that aids in creating & processing digital currencies and their transactions across decentralized systems(Technology).
Since 2009, when Bitcoin got introduced, the Global Cryptocurrency Market has expanded significantly and is expecting more than 50% CAGR during 2022-27. The primary factors attributing to this massive growth of the cryptocurrency industry in the future include substantial investments in fintech companies and the rapidly increasing venture capital funding worldwide.
The Two Major Types of Cryptocurrencies:
Coins are created on their own blockchain and act as an alternative to government-backed currencies. They can either be used for storing money or as an exchange medium for digital payments between two parties. Bitcoin and Altcoins like Ether, Litecoin, Cardano, Dogecoin, Polkadot, etc., are some prominent crypto coins.
On the other hand, Tokens, built within the blockchain of an existing coin, are considered programmable assets that help create & execute unique smart contracts, which can establish ownership of assets outside the blockchain network. They can be exchanged and used for transactions associated with items like electricity, money, digital assets, etc. BAT (Basic Attention Token), Tether, Chainlink, Uniswap, etc., are a few examples of crypto tokens.
What is the importance of Cryptocurrencies?
As some may predict, cryptocurrencies are not just limited to a couple of years. Crypto transactions are rapid, paperless, secure, & global and facilitate hassle-free record maintenance without the risk of data tampering in order to help curb fraud.
Cryptocurrencies are deflationary possessions. The total number of bitcoins that can ever be mined is around 21 million. Hence, in contrast to fiat money (government-backed currencies), these can’t lead to inflation or be manipulated by changing the interest rates or boosting money printing. As a result, countries with unstable currency rates are increasingly using these digital currencies to protect themselves against hyperinflation & rising everyday costs.
How can Cryptocurrency be used for transactions?
When an individual buys a cryptocurrency, the transaction gets recorded on the blockchain and completed only when a miner confirms that the transaction is valid. When a transfer request is initiated, a new block with transaction details like payer & payee details, transaction amount, account balance, etc., is created & broadcasted to all network participants, who verify the block against the ledger and approve or reject it. With this, distributed ledgers are updated with the new transaction, and the transaction is marked completed.
The Most Popular Cryptocurrencies
Since the Blockchain is an open-source technology, i.e., any software developer can use the original code & develop something new from it, over 18000 cryptocurrencies are believed to exist presently, where a few are inactive or hold zero market value. Hence, neglecting these cites the estimate of more than 10000 in circulation. However, the top 10 cryptocurrencies with the largest market cap among all include:
- Ethereum (Ether)
- Cardano (ADA)
- Binance Coin (BNB)
- Polkadot (DOT)
Bitcoin: The First & Leading Cryptocurrency Globally
Bitcoin, launched in 2009, is referred to as the first decentralized cryptocurrency using blockchain technology, which facilitates digital transactions. Its blockchain that works as a public ledger of all previous transactions enables individuals to authenticate that they own the Bitcoin they’re willing to trade in order to control fraud or any other unapproved tampering with the currency. Moreover, it also allows for P2P (Peer-to-Peer) money transfers quicker & less costly thn conventional currency exchanges.
To date, globally, Bitcoin is leading the cryptocurrency market in terms of market cap, popularity, & user base. Other virtual currencies like Ether are helping to devise Decentralized Financial (DeFi) systems. Besides, some altcoins (alternative to Bitcoin) have also been endorsed, with newer features than Bitcoin(Technology).
What is the Future of Cryptocurrency?
When it comes to cryptocurrencies, the world seems divided. Governments worldwide want to regulate them owing to their role in financing terrorist acts, whereas the prime focus of cryptocurrencies is to ensure anonymity among users. As a result, a skirmish between these two aspects is likely in the future.
Over the coming years, cryptocurrencies are likely to acquire more than 20% of national currencies. It cites that a significant portion of the world population will be trading cryptocurrencies by then, with more & more customers & merchants increasingly accepting them. Besides, their prices will continue fluctuating as they have been for the past few years