From digital banking to algorithmic stock markets, it’s no longer a secret that technology is fast driving innovation in the finance sector. In today’s fintech world, cryptocurrency has acquired an exalted status. Bloomberg News suggests that the global cryptocurrency market, almost nonexistent before 2009, is now worth $3 trillion.
What is Cryptocurrency and How Did It Emerge?
Cryptocurrency is a secure digital asset used for financial transactions. Throughout history, human beings have developed various sophisticated forms of currency. We’ve evolved from using stones and metal coins to paper money and plastic money. Today, cryptocurrency is establishing a firm ground globally.
The differentiating factor between cryptocurrency and other payment methods is that the former is virtual and unregulated. Crypto is created via blockchain, an incredibly innovative technology deploying mathematics and cryptography. Transactions are made peer-to-peer, eliminating the need for intermediaries such as banks, credit card companies, and other third-party payment services.
What Makes Blockchain Technology So Special?
Blockchain technology is remarkably revolutionary, just like the Internet. Today, our understanding of blockchain technology is very similar to how we perceived the Internet back in 1995. When the world’s first-ever browser Netscape came out in the 90s, no one could envision that we’ll be working with highly sophisticated Google search engines one day. But, here we are. We browse numerous Netflix options and add items to our virtual shopping carts.
To put it simply, blockchain is a digital storage system that involves highly complex encryption algorithms to develop “blocks” of interlinked data. Since it’s a consensus technology, users are also involved in the administration process. Moreover, whenever a new block needs to be added to the chain, all computers in the network engage in “proof of work” to verify the transaction.
How Did Blockchain Technology Facilitate the Creation of Cryptocurrency?
It may surprise you, but blockchain was introduced back in 1991. However, it wasn’t really utilized until 2009, when Satoshi Nakamoto developed Bitcoin. This was a result of the 2008 recession and the subsequent loss of trust in financial institutions. Grounded in blockchain, Bitcoin guarantees users autonomy in financial transactions. They don’t need to rely on banks or governments.
How Do Cryptocurrencies Acquire Value?
With bitcoin, new digital assets are developed through an intricate process called “mining.” Every time a new block is added to the existing blockchain, the first computer to crack a series of complex mathematical puzzles gets new bitcoins. As more users join the network, the complexity of puzzles also begins to increase. In addition, more computing power is also required for mining.
The Bottom Line
If you’re new to cryptocurrency, initially, it could be a bit daunting to get into the nitty-gritty of blockchain and algorithms. However, you must know that cryptocurrency is becoming a well sought-after form of financial transaction. Its accessibility and elimination of third-party elements make it highly desirable for aspiring entrepreneurs. We hope this blog helped you grasp some fundamental concepts regarding this booming phenomenon.
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