Understanding Cryptocurrency and Bitcoin
Cryptocurrency is a medium of exchange (like any other currency) which uses encryption techniques to regulate the security of transactions and generate new units. There are several types of cryptocurrency including Bitcoins, Litecoin, Ripple, Primecoin and many others. There are about 15 other cryptocurrencies with Bitcoin being the most popular.
The popularity of Bitcoin has grown in leaps and bounds over the last few years, and it has become a vital cog in the day to day commerce. Bitcoins has made trade easy by improving payments between businesses globally. Also beginning 2012, many huge corporations such as Microsoft began accepting the use of bitcoins as a payment method.
Bitcoins, unlike regular currency, is not backed by any central bank. This creates a problem as many government refuse recognize bitcoins as legal tender. Again, bitcoins and cryptocurrency, in general, are transacted outside the anti-money laundering rules (AML) and know your customer (KYC) rules. As such thereof many governments advise their citizens against the use of such currencies though it has not been ruled out as illegal. Also, cryptocurrency is infamous for being used for illegal deals such as drug sale as it cannot be traced and because it’s pseudo-anonymous properties.
Some bit-coins fanatics have criticized that argument stating that bitcoin transaction can be traced. A good example was how the illegal online shop called Silk Road ended. Silk Road was an e-bay where one could buy drugs, guns and even hire a hitman. Users transacted in bitcoins, but the FBI arrested those who were unable to hide their trails wells. The site was subsequently closed down in 2013. Also, bitcoins dealers nowadays are now working very hard to follow anti-money laundering and know your customer rules. Also, just like any other new thing in the world, cryptocurrency will obviously attract a person who does not have the best intentions.
Another argument by the bitcoin fanatics is that even with fiat currencies money laundering is still an issue. Also, money itself remains very anonymous. Only transactions in a bank or the financial system are easy to trace. Also, credit card fraud which is very rampant in the modern day is impossible with Bitcoins. Also, bitcoin transactions are captured on the blockchain.
The blockchain is the technology behind Bitcoin. Block Chain is a distributive public ledger on which every bitcoin transaction is recorded and verified by persons known as bitcoin miners. The distributive public ledger can be contrasted to the normal ledger (private ledger). For the private ledger, if money moves from person A to person B, it is only their respective banks which know about this transaction. For a distributive public ledger, a huge number of people (miners) have to verify the transaction before it can be approved. This means there can be no way of denying that a certain transaction took place between person A and person B at a specific time. This means that it is tough or rather it is impossible to commit fraud on the blockchain system.
The future of cryptocurrencies is only going to get better especially in the modern day where the fiat currency is becoming unreliable due to shocks in the global economic markets such as Brexit. A lot more people will turn to cryptocurrencies to store their wealth now and in the future.