2017 was a boom year for cryptocurrency. Everyone is scrambling madly to cash in on this new-age phenomenon, but what exactly is everyone doing? No sooner have we embraced one cryptocurrency like Bitcoin than another one emerges out of a hard fork on August 1, 2017 known as Bitcoin Cash. Then, out of nowhere, Ethereum gets displaced by a cryptocurrency named Ripple, which in turn gets displaced by Ethereum all over again. If all of this seems like gobbledygook and chasing smoke, it’s time to get on the cryptocurrency bandwagon and understand precisely why the world has gone gaga for these digital currency tokens.
So, what is cryptocurrency, and do you need it?
Cryptocurrency is digital currency. It exists only on the Internet. It is not backed by gold bullion, fiat currency, or the Federal Reserve Bank. In fact, cryptocurrency is completely decentralized (for the most part), and deregulated, and allows for anonymous transactions. So far, so good. Bitcoin began the cryptocurrency boom in 2007/2008, and it resulted from the failure of the traditional financial system to maintain economic stability during times of crisis. Cryptocurrency like Bitcoin, represented by the ticker BTC, is an anonymous, secure financial transactions payment system. Bitcoin exists on a blockchain network which allows transactions to be concluded between senders and receivers. Instead of inputting names on the network, each transaction has an encrypted code associated with participants to the smart contract.
So, why are people using cryptocurrency and blockchain when banks exist?
Traditionalists continue to eschew cryptocurrency such as Bitcoin, Ethereum, Bitcoin Cash, Litecoin, Ripple, Tron and others. However, even they admit that there is merit in blockchain technology. So, what is blockchain? Blockchain is the network of algorithmic code that facilitates the transfer of cryptocurrency from one person to the next. Blockchain is used for smart contracts. The smart contracts cannot be intercepted by hackers, third parties, intermediaries, and they are the fastest way to process transactions internationally.
They are associated with low or zero fees, no commissions, no regulatory constraints, and instant processing of financial transactions. Blockchain transactions are processed in blocks – the speed of blocks transactions processing capabilities is dependent upon the specific cryptocurrency being used. For example, Bitcoin can only process 7 transactions per second and is expensive. However, Ripple and Ethereum can process significantly greater capacity at a fraction of the cost.
Thinking about trading cryptocurrency?
If all of this seems a little confusing, you may wish to take a look at the cryptocurrency definition from leading financial powerhouse Wilkins Finance. ‘A cryptocurrency is a digital asset in the form of virtual money that is transferable between two or more parties over an electronic network. Cryptocurrency’s can be used as a medium of exchange just as money is used or otherwise kept as an investment vehicle to be traded in a cryptocurrency exchange.’
It is important to understand that cryptocurrencies are extremely volatile. As an unregulated market, there are a myriad of factors that can come into play that can pull the rug from under this burgeoning new investment paradigm. For example, acceptance of cryptocurrency in places like South Korea, the Philippines, Japan, Canada and elsewhere could lead to a boom beyond imagination.
By the same token, countries like China have taken a hard line against cryptocurrency and ICOs, with little effect on digital currency prices. Regulation is but one of several issues that can impact cryptocurrency. The more important issue is its widespread adoption among traders, laypeople, corporations and banks. Already, we have seen dramatic acceptance by companies like American Express accepting Ripple (XRP) as its de facto transmission mechanism for payments across borders. Similar trends are evident with new and existing cryptocurrencies. The market is certainly volatile, but traders can stay abreast of proceedings by using the right cryptocurrency exchanges and trading platforms to benefit from dramatic price swings.