Ever since bitcoin was launched in 2009, the digital world was never the same. The concept of a cryptocurrency, a peer-to-peer form of transaction, which is free of any central authority controlling it, caught the fancy of technology enthusiasts in the finance sector all over the world. The crypto revolution was set in motion.
Today, more than a decade after the concept was first conceptualized; we have a better understanding of its potential in changing the financial world as we know it. In order to believe in this crypto revolution, however, it is important to grab the basic understanding of the fundamental aspects of cryptocurrencies and the technology behind it which makes it so revolutionary.
Bitcoin – the First Cryptocurrency Ever Created
Today there are a large number of cryptocurrency software development companies in the world, but the concept had its humble beginnings in the form of Bitcoin.
Bitcoin is a cryptographically secure digital currency that was created with the vision of using it universally for payments, similar to cash. Bitcoin was created to replace all forms of fiat currencies with digital currencies that required no middlemen. It was deemed to be a safe, secure, and contactless method for conducting digital transactions.
Bitcoin code was open source so it enabled people to create their own version of digital coins – collectively known as Altcoins. Today, with the advent of cryptocurrency development services, a number of parallel digital currencies have come into existence and are revolutionising the way transactions are carried out in the digital world. While bitcoin still maintains dominance at 45% of the total cryptocurrency market, the other cryptocurrencies are soon catching up.
Key Characteristics of Cryptocurrency
As the concept of cryptocurrency became more and more realistic, a number of businesses came forward to understand and use the technology to create newer and better versions of cryptocurrencies and solve the issues that usually arose in case of digital payments. Bitcoin exhibited three key characteristics, and every digital cryptocurrency since is based on the same technology backing bitcoins, i.e. blockchain, these characteristics are common across the board.
The three main characteristics exhibited by cryptocurrencies that make it such a lucrative commodity include:
- Ensures Trust
Bitcoin is based on the premise that none of the participants involved in any transaction need to completely trust the central authority controlling the currency in order for the network to function. Earlier, every traditional form of currency required the existence of a central authority that one had to trust to use it. In each case, the central authority eventually became the central weakness which lead to the demise of the currency.
In case of cryptocurrencies, however, each part of the ecosystem has been designed to validate every other part without there being any requirement for trust within the setup. When a bitcoin transaction is made, it is broadcast and all nodes receive it. These nodes verify if the signatures are valid. If the signatures are not valid, the transaction is disapproved and discarded.
Every participant involved in the transaction has a copy of the ledger. Therefore, there is no need to trust a single central entity or organization facilitating the transaction. The transaction can be verified through the ledger itself. The decentralized ledger is known as blockchain. The proof-of-work consensus algorithm is one of the most ground-breaking ideas in modern economics. The incentive encourages individual nodes to stay honest. Blockchain enabled cryptocurrencies have, thus, been able to solve a long-standing trust issue and acted as a big reason to give cryptocurrencies staying power. Cryptocurrency development companies are cashing in on this incentive.
Since all the cryptocurrency transactions are recorded on a distributed shared ledger – blockchain, it is next to impossible to make changes to the records. For instance, in a traditional setup, when someone wants to check how money from his account has been spent, he checks the transaction history with the bank. In this case, he trusts the banks to not fabricate transactions or manipulate the money. If there are any fraudulent transactions, the bank is trusted to change them and fix the situation. It all depends on the central authority controlling the bank, and the person needs to place his faith in the system. In the case of cryptocurrency, however, there is no need for him to trust a third party to do things. The transaction records are made public and are unchangeable.
The cryptographic security provided to every individual makes it extremely difficult to change any transaction ledger. The entire network of cryptocurrency users will have to be compromised in order to make one small change, and it will be practically impossible.
Blockchain is a decentralized technology. This means that there is no single entity controlling it and no infrastructural central point of failure. Since the technology relies on a network of disjointed components, it is less likely to fail by accident.
It is extremely expensive to attack, manipulate, or destroy a decentralized system and this makes it pointless to hack. Additionally, it is impractical for members of the decentralized system to act in ways that benefit certain individuals at the expense of others.
With cryptocurrency, no individual or consortium is able to affect the supply of currency or exert significant influence over it without the approval of the majority.
Owing to these three unique characteristics, cryptocurrency has been regarded as a revolutionary technology in the finance realm. Cryptocurrencies are inherently deflationary through limited supply which is a bonus to its economic adoption. Every leading cryptocurrency features a maximum token supply caps or infinite supply with pre-defined production parameters. All these characteristics make cryptocurrency the next big thing to hit the finance industry.
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