Cryptocurrency, best known as bitcoin, has been making the buzz in the media recently. Even though only a few people are familiar with it, it could be the next big thing in the near future.
According to Nigel Green, CEO and founder of one of the biggest independent financial advisory, asset management, and fintech organisations, deVere Group, Tanzania, and Paraguay or Mexico are to adopt Bitcoin as a legal tender before 2022 ends.
This comes after the Central African Republic (CAR) became the first African country to embrace Bitcoin as its official currency, trailing only El Salvador. He asserts that this is only the beginning.
Cryptocurrency is generally a medium of exchange, like the US dollar, but is digital and uses encryption to control the production of monetary units and to verify the transfer of funds.
It’s a digital currency in which transactions are validated and records are kept by a decentralised system leveraging cryptography rather than a centralised authority.
Cryptocurrency is generally a medium of exchange, like the US dollar, but digital. Net photo.
When a sender encrypts/hides a message using a type of key and algorithm, the receiver decrypts it to generate the original message, this is known as cryptography. Cryptography is used to protect the virtual currency against counterfeiting and double-spending.
It is reported to have been invented in 2008 by an unknown person or people using the name Satoshi Nakamoto, and it was first used in 2009. The virtual currency got immensely popular in the years 2016-2020. Block one, a Chinese company is claimed to be the largest private bitcoin owner.
All bitcoin is controlled by private keys whose owners own the bitcoin secured by the key, according to River Financial, a platform to buy, sell, and use bitcoin in the United States. Ownership of bitcoin, even in large quantities, does not confer any control over the Bitcoin network.
According to them, the three wealthiest bitcoin addresses own more than 575,000 BTC, and Microstrategy owns more bitcoin than any other publicly-traded company.
A BTC transaction is a bitcoin transfer from one address to another. The sender must sign the transaction because its validity is solely dependent on them. Pieces of bitcoin, called unspent transaction outputs (UTXOs), are all associated with an address, which is managed by the bitcoin’s owner rather than accounts.
All bitcoin transactions are released to the memory pool, a smaller database of unconfirmed or pending transactions, and are only considered confirmed when they are added to a block by a miner.
Cryptocurrency mining is a competitive process that uses the proof-of-work method to verify and add new transactions to the blockchain. This is a method in which one party (the prover) solves an arbitrary mathematical puzzle to prove to others (the verifiers) that a certain amount of a specific computational effort has been expended.
As a result, the winner (miner) receives a portion of the money and/or transaction fees.
Why cryptocurrency over local currency?
A bitcoin transaction is praised for being faster because once the network confirms the block containing the transaction, it is fully settled and the funds are ready to use in a few minutes, even if the transaction is done over a considerable distance.
Bitcoin transactions are also cheaper, and anyone with a computer or smartphone and an internet connection can access it. Setting up a bitcoin wallet is faster than opening a bank account and it is more secure because transactions and funds cannot be signed or accessed without the owner’s private key.
Cryptocurrency wallets are also preferred for maintaining a high level of privacy, and transparency since transactions take place on the publicly distributed blockchain ledger. Bitcoin cryptocurrencies are viewed by many as a measure of inflation protection. Government-issued currencies generally lose value over time owing to central bank money creation, however, bitcoin defies depreciation due to its fixed/limited supply and decentralisation.
This might be especially beneficial for low-income countries, which have long suffered from weak currencies that are extremely susceptible to market fluctuations and inflation.
On the other hand, cybersecurity breaches, price volatility due to a lack of inherent value, scalability, and a lack of regulation and supervision by federal governments are all worries that keep investors away from Bitcoin. Nonetheless, cryptocurrencies may be here to stay, despite these potential barriers to mass adoption.