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A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed LEDGER enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.
Basically, cryptocurrencies are systems that allow for secure payments online which are denominated in terms of virtual "tokens," which are represented by ledger entries internal to the system. "Crypto" refers to the various encryption algorithms and cryptographic techniques that safeguard these entries, such as elliptical curve encryption, public-private key pairs, and hashing functions.
From when cryptocurrency like Bitcoin hit the market so impactfully. People like us are more interested in understanding cryptocurrency. Bitcoin has not only been just a trendsetter, ushering in a wave of cryptocurrencies built on a decentralized peer-to-peer network, but also has become the de facto standard for cryptocurrencies, inspiring an ever-growing legion of followers and spinoffs.
And for this reason Billionaire investor and famed hedge fund manager, Ray Dalio, has stated he would prefer to purchase BTC over bonds during a recent interview at crypto conference Consensus. Speaking on May 6 in an interview that was aired on Monday, May 24, the co-chairman and co-CIO of Bridgewater Associates describe Bitcoin as a superior instrument for saving than government or corporate bonds:
“The more we create savings in [Bitcoin], the more you might say, ‘I’d rather have Bitcoin than the bond.’ Personally, I’d rather have Bitcoin than a bond.”
Dalio added that the more savings that go into crypto, the less power governments have over ordinary people’s capital.
Cryptocurrencies are almost always designed to be free from government manipulation and control, although as they have grown more popular, this foundational aspect of the industry has come under fire. The currencies modeled after Bitcoin are collectively called altcoins, and in some cases “shitcoins,” and have often tried to present themselves as modified or improved versions of Bitcoin. While some of these currencies may have some impressive features that Bitcoin does not, matching the level of security that Bitcoin’s networks achieve largely has yet to be seen by an altcoin.
Beyond that, the field of cryptocurrencies is always expanding, and the next great digital token may be released tomorrow. While Bitcoin is widely seen as a pioneer in the world of cryptocurrencies, analysts adopt many approaches for evaluating tokens other than BTC. It’s common, for instance, for analysts to attribute a great deal of importance to ranking coins relative to one another in terms of market capitalization. We’ve factored this into our consideration, but there are other reasons why a digital token may be included in the list as well.
Types of cryptocurrencies:
The first blockchain-based cryptocurrency was Bitcoin, which still remains the most popular and most valuable. Today, there are thousands of alternate cryptocurrencies with various functions and specifications. Some of these are clones or forks of Bitcoin, while others are new currencies that were built from scratch.
Bitcoin was launched in 2009 by an individual or group known by the pseudonym "Satoshi Nakamoto. "1 As of March 2021, there were over 18.6 million bitcoins in circulation with a total market cap of around $927 billion.
Some of the competing cryptocurrencies spawned by Bitcoin’s success, known as "altcoins," include Litecoin, Peercoin, and Namecoin, as well as Ethereum, Cardano, and EOS. Today, the aggregate value of all the cryptocurrencies in existence is around $1.5 trillion—Bitcoin currently represents more than 60% of the total value.
Advantages and Disadvantages of Cryptocurrency:
Advantages
Cryptocurrencies hold the promise of making it easier to transfer funds directly between two parties, without the need for a trusted third party like a bank or credit card company. These transfers are instead secured by the use of public keys and private keys and different forms of incentive systems, like Proof of Work or Proof of Stake.
In modern cryptocurrency systems, a user's "wallet," or account address, has a public key, while the private key is known only to the owner and is used to sign transactions. Fund transfers are completed with minimal processing fees, allowing users to avoid the steep fees charged by banks and financial institutions for wire transfers.
Disadvantages
The semi-anonymous nature of cryptocurrency transactions makes them well-suited for a host of illegal activities, such as money laundering and tax evasion. However, cryptocurrency advocates often highly value their anonymity, citing benefits of privacy like protection for whistleblowers or activists living under repressive governments. Some cryptocurrencies are more private than others.
Bitcoin, for instance, is a relatively poor choice for conducting illegal business online, since the forensic analysis of the Bitcoin blockchain has helped authorities arrest and prosecute criminals. More privacy-oriented coins do exist, however, such as Dash, Monero, or ZCash, which are far more difficult to trace.
Overview of Cryptocurrency:
Since market prices for cryptocurrencies are based on supply and demand, the rate at which a cryptocurrency can be exchanged for another currency can fluctuate widely, since the design of many cryptocurrencies ensures a high degree of scarcity.
Bitcoin has experienced some rapid surges and collapses in value, climbing as high as $19,000 per Bitcoin in Dec. of 2017 before dropping to around $7,000 in the following months.2 Cryptocurrencies are thus considered by some economists to be a short-lived fad or speculative bubble.
There is concern that cryptocurrencies like Bitcoin are not rooted in any material goods. Some research, however, has identified that the cost of producing a Bitcoin, which requires an increasingly large amount of energy, is directly related to its market price.
Cryptocurrency blockchains are highly secure, but other aspects of a cryptocurrency ecosystem, including exchanges and wallets, are not immune to the threat of hacking. In Bitcoin's 10-year history, several online exchanges have been the subject of hacking and theft, sometimes with millions of dollars worth of "coins" stolen.5
Nonetheless, many observers see potential advantages in cryptocurrencies, like the possibility of preserving value against inflation and facilitating exchange while being easier to transport and divide than precious metals and existing outside the influence of central banks and governments.
