What is Cryptocurrency? Evolution of currency

What is cryptocurrency, cryptocurrency coins, evolution of currency, acutual currency vs crypto/token

WHAT IS CRYPTOCURRENCY?

Cryptocurrency is a virtual or digital currency which is available in electronic form used for transactions like your money. But this currency is based upon blockchain technology and is fully decentralized to secure this currency a technical system called cryptography is used. Who invented the cryptocurrency concept? It is said that Satoshi Nakamoto invented the world's first cryptocurrency (i.e.) bitcoin. He is hiding his identity for security reasons. Apart from bitcoin, he is also known to have built the first decentralized blockchain database. Bitcoin is the first cryptocurrency invented ever. In recent years, this concept has gained popularity and financial benefits and many coins have rised in the market.

What are the few famous coins?

Ethereum, Lite coin, Ripple, and Dogecoin. Every coin on cryptocurrency is based on a business logic that is solving real-world problems. For example, Ethereum helps you transfer money online to anyone, anywhere. Lite coin provides you affordable payment gateway, customized solutions, advanced ATMs and wallets, etc. Ripple also is a payment solution for financial transactions. Dogecoin does nothing apart from claiming to have supported creators to get some charity. Apart from Dogecoin the other coins like Ethereum, Lite coin, Ripple solve a real-world problem.

Evolution of currency

When mankind started trading it was first with a Barter system. Where you exchange goods or services with someone who can offer you goods or services of your choice at a mutual agreement and you would trade. For example, you have a sack of wheat and someone else has a sack of rice you want to exchange wheat with rice if the other person is convinced to buy wheat from you. You exchange the goods or services and that is the barter system. That was the first way of doing trading.

Coins/ Precious gems

As we evolved we saw kingdom rules and they used gold and silver coins as currency to trade. So now if you want rice wheat or any other services. You can get it by giving these coins to complete the transaction.

Currency by Government

Post kingdom rules came on the government who provided our currency in the form of coins and notes. And they were used to doing the same transaction. This currency has seen lots of evolution lately.

Digitalization

Around 75 percent of the transaction across the globe are now digital that is via UPI, wallets, NEFT, RTGS, etc. This created world of virtual currency is the money that is used in your account as a digit and is transferred to complete the transaction.

Cryptocurrency

Cryptocurrency is a step ahead of all this the current problem with a currency that we use is every nation has its currency say India has rupees, America has dollars, Europe has pounds, etc. and the value of the currency keeps fluctuating on various global news incidents and expectations. But, cryptocurrency is a single currency for the world say bitcoin is the same for India, America, Europe, or the rest of the world. So one currency can be sent via digital form across the globe without any exchange rate, commission, tax, or any middleman involved. So this is a promising idea but this is not fully accepted in the market many countries have imposed a ban on cryptocurrency as well.

Example Scenario

Assume there is a person called A and he wants to drink a cup of coffee. He goes to a nearby café and in the cafe person, A pays cash to get a token which will be used to buy coffee at the coffee counter. Let’s assume the name of this token is bitcoin and the coffee counter will accept bitcoin as a token and deliver him a cup of coffee. Now this coffee token that A has bought is say bitcoin and the coffee counter will accept bitcoin as a token and deliver him a cup of coffee. To summarize the token concept that we have seen in the case of A and the coffee shop the summary here is that it is valid for that particular hotel only. Person A can't take that token and go to another hotel and demand coffee or something else it is valid for that hotel and is the currency for that hotel. However, imagine the coupon is valued for many stores and used instead of cash to take a coffee, meal, or any other grocery. Cryptocurrency in a nutshell is more or less like this token that is being accepted by merchants and countries as a currency to transact.

Comparison between actual currency and the Crypto/ Token

The main differences are first in case of money government assures the coin or the note it has a value. But when we think of coupons or crypto no one assures its value. The value tomorrow can drop to zero and you can do nothing about it.

The second difference is the currency given by the government is valid across the nation. You can exchange to run it across the globe as well. But tokens or crypto are valid with merchants who are willing to accept.

Currency is managed and regulated by government bodies and hence the value is fairly stable. Whereas tokens or cryptos are managed by the community that is using that token and are very volatile.

Since the government is creating the currency. They can print as much as they want and the power is centralized in the hand of only the government. But, crypto is more transparent you know how many crypto coins are present in the market and they cannot be randomly grown. For example, in bitcoin, there will be only 21 million bitcoins ever produced. No one controls the production the entire setup is decentralized.

What do banks work and how money is credited or debited?

Let us say person A wants to buy something from Amazon. So person A orders and pays online what will happen is the money from our bank will be debited and it will be credited to the bank account of amazon. Now both the banks of person A and amazon will make and maintain a ledger wherein the case of person A XYZ amount will be debited and the same XYZ amount will be credited to amazon's bank account. Now person A can continue to do shopping or even spend this money as long as person A's bank account does not hit zero. The moment around's bank account hits zero marks he won't be able to do any more purchases or transactions. So banks are maintaining a ledger of every single person and checking that their account is above zero if it hits zero they won't be able to purchase anything. So the bank is nothing but a ledger maintaining unit that is assuring that a particular person's bank account has a value above zero.

Now shall we maintain a ledger on my own and I don't need any bank between?

Cryptocurrencies are eliminating the bank between which is centralizing the ledger management instead of that the entire ledger management system is decentralized. Suppose say I don't need any bank in between and I am maintaining the transaction of my spending on a big excel sheet on the cloud. That excel sheet on the cloud is a rough version of cryptocurrency. Every time a person wants to transaction with someone else a ledger is maintained with a digital signature. No one can randomly add any extra lines of credit or debit all the lines of credit or debit will be authorized. All can maintain the ledger the moment anyone's account turns out to be negative they will be no longer eligible to pay or receive any amount. Cryptocurrency does without exchanging money keep circulating the money around the network and at the end of a month or a quarter, you can do a settlement. So this is exactly how a bitcoin transaction looks like. So this is how the crypto market works. It is completely decentralized like an excel sheet on a server when anyone is writing any line which is getting approved and verified by bitcoin miners to be more precise.

Assume, there is a transaction of bitcoin X person has paid Y some bitcoin. Now whatever bitcoin transaction has been done and if it is approved and verified then this transaction is replicated or broadcasted on all the bitcoin community. So anyone who is holding any form of bitcoin will get this transaction copied in their ledger. So in their ledger, they will be seeing that there is an X person in the community who has given Y a person some X bitcoin. And that has to be debited from X account and credited to y account and everyone in the community will approve it. That is the only way the entire virtual currency is running around.

How big is a crypto market?

Thus, in two decades crypto is over a two trillion dollar market. Around 51% of it is bitcoin and the remaining 49% is with all the other thousands of coins. This market is expected to double in 2028. So yes there is a promising future in investing in crypto.