By: Angelo Kaufman
A cryptocurrency is a digital asset that was designed to be used as a medium of exchange and usually runs in a complex network of digital devices. A word made popular along with blockchain by the recent rise of bitcoin which was the first decentralized cryptocurrency and is secured by a form of cryptography.
Not to be confused blockchains, cryptography, and cryptocurrencies are three different things. Cryptography is a method of protecting information by transforming it into a secure format. A blockchain is a list of records linked together by cryptography, and a cryptocurrency is a digital currency that utilizes the blockchain or other forms of cryptography to secure and keep track of all transactions. It gets its value from the way security is implemented. A cryptocurrency is typically designed to be decentralized, secured, and some are designed to have limited currency supply (or deflationary).
Unlike fiat or common currencies, a cryptocurrency is nearly impossible to counterfeit because of the application of cryptography. Cryptography makes sure that transactions performed were legitimate and not tampered during transmission over the network. This means only digital assets that are verified and are in the ledger, can be used for transactions.
A cryptocurrency is also designed to be decentralized, preventing security to be compromised. To destroy a cryptocurrency or compromise its security, one would have to take out the majority if not all of the devices in the network that are keeping a copy of the ledger or blockchain. Some cryptocurrencies are also designed to be deflationary or have limited currency supply. This is why cryptocurrencies such as bitcoin can be expensive. As the demand grows, the supply remains to be maxed out at 21million bitcoins and is even declining.
The idea of cryptocurrency is still relatively in its infancy which means there are also some risks involved with it at this stage. Since most are designed to be decentralized there are really no regulating bodies that keep the transactions in check. If you’ve lost your cryptocurrencies or made a transaction by mistake, or for some reason got scammed online, there won’t be a regulating body that could help you out in these situations.
Another issue with cryptocurrencies is that it is still in the early stages and most of them are not even used for their intended purpose. Cryptocurrencies’ values fluctuate often and fast due to their adaption as a currency and as often as an investment or used in trading rather than buying of goods.
As for the future, it is still unclear what the effects of cryptocurrency will be in an economic and financial perspective. What is clear is that the technology and idea behind cryptocurrencies have given us opportunities and a new perspective on how to do things, especially in the areas of digital transactions, and how we manage sensitive data.
Angelo Kaufmann is a software engineer with 10 years of experience in security systems, software development, and strategic technical management. He is currently the Strategic Technical Manager of Satellite GPS Tracking and Asset Management System Corporation, the developer and owner of SafeSat and Findr.
