A cryptocurrency is a digital currency that is shaped and managed through the use of advanced encryption techniques known as cryptography. Cryptocurrencies are systems that allow for the secure payments online which are entitled 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.
Cryptocurrency is designed from the ground up to take advantage of the internet and how it works. Instead of depending on traditional financial institutions who verify and guarantee your transactions, cryptocurrency transactions are verified by the user’s computers logged into the currency’s network. Since the currency is protected and encrypted, it becomes impossible to increase the money supply over a predefined algorithmic rate. All users are aware of the algorithmic rate. Therefore, since each algorithm has a roof limit, no cryptocurrency can be produced or “mined” beyond that.
Since Cryptocurrency is entirely in the cloud, it does not attain a physical form but have a digital value, and can be used for digital equivalent of cash in a gradually increasing number of retailers and other businesses. Bitcoin was the first cryptocurrency that was ever created, and while there is a small fee for every cryptocurrency transaction, it is still substantially lesser than the usual credit card processing fees.
How do cryptocurrency work?
Transactions are sent between peers using software called “cryptocurrency wallets”. The person creating the transaction uses the wallet software to transfer balances from one account (a public address) to another. To transfer funds, knowledge of a password (a private key) associated with the account is needed. Transactions made between peers are encrypted and then broadcast to the cryptocurrency’s network and queued up to be added to the public ledger. Transactions are then recorded on the public ledger via a process called “mining”. All users of a given cryptocurrency have access to the ledger if they choose to access it, for example by downloading and running a copy of the software called a “full node” wallet (as opposed to holding their coins in a third party wallet like Coinbase). The transaction amounts are public, but who sent the transaction is encrypted (transactions are pseudo-anonymous). Each transaction leads back to a unique set of keys. Whoever owns a set of keys, owns the amount of cryptocurrency associated with those keys (just like whoever owns a bank account owns the money in it). Many transactions are added to a ledger at once. These “blocks” of transactions are added sequentially by miners. That is why the ledger and the technology behind it are called “block” “chain.” It is a “chain” of “blocks” of transactions.
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How Cryptocurrency is Changing the Banking Industry
The emergence and growth of blockchain technology and the resultant cryptocurrencies has sent shockwaves throughout the financial markets. Cryptocurrencies have changed the way people conduct financial transactions globally. Be it typical mobile money transfers of the payment of goods and services; blockchain technology has been integrated into pertinent aspects of financial transactions.
It is expected that crypto banking will become an integral part of the financial industry due to its impressive uptake. It is a massive improvement to traditional banking setups, which have a centralized system. Since cryptocurrencies are decentralized systems, they not only offer services that you will find in conventional banks, but also guarantee more efficiency, reduced bureaucracy, transparency, and security. Here’s how cryptocurrencies are revolutionizing the banking industry.
They Are Eliminating Previous Imperfections in the Banking System
Traditional banking was seen as a convenient way of making financial transactions. Nonetheless, advances in technology have left banks vulnerable to data breaches and other governance & compliance issues. Cryptocurrencies are playing an integral role in addressing these imperfections. For instance, crypto banks are more immune to data hacks compared to traditional banks. Similarly, cryptocurrency transactions are anonymous and secure. If someone makes a payment to you using paper cash, there’s a possibility that the money could be counterfeit. This isn’t the case with crypto-cash since you cannot counterfeit a cryptocurrency.
They Have Eliminated the Need for Middlemen
Cryptocurrencies are primarily based on a decentralized system in the sense that blockchains allow you to make transactions securely and independently without involving intermediaries. This isn’t the case in the traditional banking system where the money is stored in the bank, and users can only make transactions that are sanctioned by the banks. In the crypto world, no entity holds onto your money. Instead, your money is held on the cloud via the blockchain technology. This explains why there have been fears that the traditional banking system could collapse altogether if more people shifted to crypto banks.
Cryptocurrencies Have Lowered the Cost of Transactions
Cryptocurrency transactions are generally cheaper than traditional money transfers. If you are to pay a vendor $2,500 using your credit card, for instance, there will be additional charges along the way. This results from the fact that there are other entities involved in the fulfillment of that transaction. As a result, you will end up with less money than you are owed for merely offering your clients the convenience of making credit card payments. One of the most outstanding features about crypto cash is that you are not required to pay high charges for transactions to be processed. Often crypto-cash transactions are either free or incredibly low.
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The Finite Nature of Cryptocurrencies Makes Them Different
Banks do not issue cryptocurrencies. Instead, users acquire them through mining, which involves complex algorithmic processes. Often, there is an unbounded supply built onto the code of cryptocurrencies. In contrast, traditional currencies have a limited supply chain. The availability of fiat currencies can change anytime depending on the fiscal policies of governments that issue them. You can’t put a figure on cryptocurrencies. Therefore, the finite nature of cryptocurrencies will increase demand, thus driving up value. It is expected that over time, it will become increasingly difficult to mine crypto-cash until the upper limit is attained.
Ease of Use
As technology improves, users expect financial transactions to be faster, free, and easier. One of the changes that cryptocurrencies will undoubtedly bring to the banking industry is convenience. You won’t need to carry that chunky wallet with wads of cash and credit cards in it. Cryptocurrencies offer users a credible store of value without subjecting them to the inconvenience of walking around with cash or credit cards, which are prone to theft, loss, and similar incidents. Blockchain technology is the embodiment of the rapid digitalization that characterizes today’s banking industry.
Cryptocurrencies Appear to Be a Safer and Fairer Investment Option
The traditional banking system is skewed and is designed to act to favor those who have money and sound financial knowledge. This is why we still have people who prefer storing hard cash at home rather than banking it. Due to inflation and similar fiscal phenomena, fiat currencies always seem to lose their value every year.
With cryptocurrencies, your money stays secure since banks or government agencies cannot devalue it. Once cryptocurrencies attain widespread acceptance in the financial markets, they will help people with minimal financial knowledge to make sound investments without worrying about devaluation. Similarly, such individuals will be in control of their finances without involving intermediaries.
It is pretty clear that cryptocurrencies are changing the banking industry because they have new and exciting benefits to users compared to the fiat currency system. Therefore, inevitably, traditional banks will also follow suit and decentralize their operations in the face of cutthroat competition from cryptocurrencies.
How will Cryptocurrency Change the world?
Much has been said about how cryptocurrency will revolutionize future payments, services, businesses, and by doing so, change the world. Some of these much talked about changes include:
Strengthen E-Commerce: It appears that more and more people now shop online most of the time. cryptocurrency gives individuals even more reasons to become used to the convenience of online shopping, as it mitigates the risk of fraud for both vendors, sellers, and shoppers and eases consumer concerns regarding the safety of their personal information. It is also expected that cryptocurrency will facilitate online shopping more efficiently than fiat currency since it does not have to observe international rules or comply with trade restrictions.
Ease Cross-Border Transactions: cryptocurrencies keep challenging conventional monetary systems in many regards. one of these areas is money transfers. digital currencies such as bitcoin are as much of freely convertible money as there can be. more so, their fast execution times and meager transaction cost makes them the ideal resources for cross-border money transfer. it is no wonder currencies like ripple are taking over with cross-border transactions.
Help Increase Global Remittances: Older money transfer firms like moneygram and western union are not cost-effective. typically, foreigners are charged a high percentage as commission when they send money to their home country. asides the high commissions, funds transfers made through money transfer operators like western union are not processed on time. cryptocurrency transfers, on the other hand, are highly cost-effective and occur in real time. such advantages are expected to enable digital currencies to drive growth in foreign remittances. the fact that users could also process transfers directly from their mobile devices from any location will also help encourage participation.
Faster Transfers: As already mentioned, cryptocurrency transactions are processed instantly. this means that market participants need not wait for days or weeks for transfers to be confirmed.
Beyond these, cryptocurrencies may also help bring stability to unstable fiat currencies, phase out the currency exchange system, give people more control over their own funds, and provide scalability, among others.
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The market of cryptocurrencies is fast and wild. Nearly every day new cryptocurrencies emerge, old die, early adopters get wealthy and investors lose money. The emergence of Bitcoin has sparked a debate about its future and that of other cryptocurrencies. Bitcoin has begun to carve itself a niche market, which could help advance cryptocurrencies further into becoming mainstream; or be the main cause of it failing. It possible that the future holds a place for cryptocurrency as a major currency solution, and Bitcoin will be instrumental in paving the way for those currencies to flourish. The revolution is already happening. Institutional investors start to buy cryptocurrencies. Banks and governments realize that this invention has the potential to draw their control away. Cryptocurrencies change the world. Step by step. You can either stand beside and observe or you can become part of history in the making.