Believe it or not, cryptocurrency has been around for some time. In the past ten years, there have been a number of cryptocurrencies, but the original cryptocurrency is still around — Bitcoin. It was created in 2009 by Satoshi Nakamoto as a way to prevent traditional banks (payment systems) from making double payments. Cryptocurrency is digital “cash” that is also a digital asset, in which it can be traded and invested. What makes cryptocurrency interesting is that it uses cryptography to secure and verify transactions. Cryptography is a form of encryption, which is a core element of blockchain. It uses an algorithm (a cipher) to encrypt each transaction. To understand cryptocurrency, we must first look at the technology behind it called blockchain.
Blockchain will gain a lot of traction in the next year. In short, it is an electronic ledger that records cryptocurrency transactions. A day’s worth of transactions are stored in a block, which is then added to another block chronologically and so on. Unlike a traditional bank, Blockchain uses a decentralized server to store the transactions, which is a peer-to-peer network. This makes it virtually impossible to trace a transaction to an individual. The ledger is distributed across the network making the transactions tamper-proof. However, since transactions are anonymous, they are attracting people who use cryptocurrency to make illicit purchases. When a transaction is requested, a public key is assigned to it. This key encrypts the transaction. The person who owns the private key to the transaction is the only one who can decrypt it. It is vital that the private key is kept confidential to protect it from hackers. These keys are linked mathematically and paired for secure communication. Once verified, the transaction is processed and then added to a block.
Cryptocurrency will be gaining more traction as well. It is slowly becoming accepted worldwide and regulated. Japan and Malta have recently established regulations for it, and Australia has legalized cryptocurrency and exchanges. Cryptocurrency has yet to be regulated in the United States, thus it is not FDIC insured. There are cryptocurrency hubs popping up as well that promote the use of cryptocurrency as well as blockchain companies. There are concerns about the price of cryptocurrency and its tendency to be volatile, which affects its value. Yet, many predict it will have a solid market value in the near future.