Cryptocurrency is a digital asset designed to be a medium of exchange that uses cryptographic technology to secure its transactions, to control the creation of additional units, and to verify the transfer of the assets – Wikipedia
As opposed to centralized electronic money and central banking systems, cryptocurrency uses decentralized control.
The decentralized control of each cryptocurrency works through a blockchain, which is a public transaction database, functioning as a distributed ledger.
The validity of each cryptocurrency’s coins is provided by a blockchain.
A blockchain is a continuously growing list of records, called blocks, which are linked and secured using cryptography.
Cryptocurrencies are also marked by decentralized control.
The supply and value are controlled by the activities of their users and highly complex protocols built into their governing codes, not the conscious decisions of central banks or other regulatory authorities.
Cryptocurrencies are generally characterized by finite supply. Their source codes contain instructions outlining the precise number of units that can and will ever exist. Over time, it becomes more difficult for miners to produce cryptocurrency units until the upper limit is reached and new currency ceases to be minted altogether.
Cryptocurrencies’ finite supply makes them inherently deflationary, more akin to gold and other precious metals – of which there are finite supplies – than fiat currencies, which central banks can, in theory, produce unlimited supplies.
Early History of Cryptocurrency
Cryptocurrency’s technical foundations date back to the early 1980s when an American cryptographer named David Chaum invented a “blinding” algorithm that remains central to modern web-based encryption. The algorithm allowed for secure, unalterable information exchanges between parties, laying the groundwork for future electronic currency transfers. This was known as “blinded money.”
By the late 1980s, Chaum enlisted a handful of other cryptocurrency enthusiasts in an attempt to commercialize the concept of blinded money. After relocating to the Netherlands, he founded DigiCash, a for-profit company that produced units of currency based on the blinding algorithm. Unlike Bitcoin and most other modern cryptocurrencies, DigiCash’s control wasn’t decentralized.
Shortly thereafter, a Chaum associate named Nick Szabo developed and released a cryptocurrency called Bit Gold, which was notable for using the blockchain system that underpins most modern cryptocurrencies. Like DigiCash, Bit Gold never gained popular traction and is no longer used as a means of exchange.
Pre-Bitcoin Virtual Currencies
After DigiCash, much of the research and investment in electronic financial transactions shifted to more conventional, though digital, intermediaries, such as PayPal.
In the United States, the most notable virtual currency of the late 1990s and 2000s was known as e-gold. Its customers, or users, sent their old jewelry, trinkets, and coins to e-gold’s warehouse, receiving digital “e-gold” – units of currency denominated in ounces of gold.
At its peak in the mid-2000s, e-gold had millions of active accounts and processed billions of dollars in transactions annually.
Future of Cryptocurrency
The cryptocurrency market, which trades various digital-based coins, can look exciting, scary, and mysterious all at once to the casual observer.
“Cryptocurrency is very much here to stay,” said futurist and author Thomas Frey, noting that he’s speaking to the Federal Reserve in September on the topic. He predicts that “cryptocurrencies are going to displace roughly 25% of national currencies by 2030. They’re just much more efficient, the way they run.”
“I see crypto investments similarly to how I see traditional investments in stocks and bonds, which go through cycles,” Canton said. While “there is more volatility in cryptocurrencies,” he added, “it’s a worthy area for people to experiment with their investment portfolios really carefully.” Frey added.
The rise of cryptocurrencies over the past couple years represents “the legitimization of a new asset class emerging alongside the traditional global economy,” according to Dr. James Canton of the Institute for Global Futures. “I’d say you can expect an exponential increase of new investment vehicles to come from crypto finance.”
According to Daniele Bianchi, Assistant Professor of Finance at Warwick Business School, we should expect a “great deal of diversity in the way regulators deal with cryptocurrency trading.”
“Increasing value and legitimacy of cryptocurrencies is not only good for investors but also brings attention from regulators and policymakers,” Bianchi told ZDNet
Simon Yu, CEO of blockchain startup StormX, says, “Millennials are particularly open to embracing new technology in order to create opportunities for themselves and blockchain, the tech behind crypto, is no different. As masters of the side hustle and challenges of the traditional 9-5 working lives of previous generations, millennials are welcoming blockchain with open arms.”
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