Free 700 words essay on Cryptocurrency -: Importance, Impacts and Facts for school and college students.
Unlike Fiat money which is a physical medium of exchange represented by bills and coins, cryptocurrency is a digital medium of exchange. A decentralized form of digital money not backed by banks or any government entity, cryptocurrency is represented by one private and one public piece of code. Its supply is unlimited and the value depends on demand and supply. The first cryptocurrency accepted worldwide was Bitcoin created by an anonymous person named Satoshi Nakamoto. Computers solve complex mathematical problems and are rewarded for their solutions with coins. Deflationary in nature, cryptocurrency’s value is less influenced by price of goods and services and no interest is paid on it. Since cryptocurrencies are just pieces of information, they are impossible to counterfeit being secured by cryptographic code.
To under this, it is important to know the blockchain technology. Cryptocurrency is a medium of exchange created and stored electronically in a blockchain utilizing encryption techniques to control the creation of monetary units and to verify the transfer of funds. When someone requests a transaction, it is broadcasted on a peer-to-peer network consisting of computers known as nodes. This network validates the transaction and also the user’s status using known algorithms. Once this transaction that involves a cryptocurrency gets verified, it combines with other transactions to create a new block of data for the ledger. The complete blockchain is permanent and unalterable, thereby making cryptocurrency transaction hack-proof and irreversible.
It is to be noted that cryptocurrency transactions are settled immediately without any third-party approvals or contracts. They also do not incur any transaction fees since the miners are compensated by the network.
Other than Bitcoin which is the most important and widely used cryptocurrency, there are few more trendsetters.
In terms of popularity and market capitalization, Bitcoin rules the market.
The cryptocurrency market capitalization has surpassed $200 billion. Although it is yet to shed its characteristic volatility, according to a report by Motley Fool, the aggregate market cap of cryptocurrency has grown by 810% in the year 2017. The worldwide trend has shown that cryptocurrency has cannibalized the demand for gold as investors are turning towards the former.
Digital currency has a potential to be an important part of the economy of future. From an academic concept to virtual reality, cryptocurrencies especially Bitcoins have become frontrunners of financial transactions in the cyberspace. It is free from all government oversight and monitored by a peer-to-peer Internet protocol. With recognition at universal level, cryptocurrencies can be accessed by everyone. Accounts can’t be frozen and there are no prerequisites or arbitrary limits to stored value.
- The Economist reports that Bitcoin and Ethereum are the two most disruptive cryptocurrencies that are leveraging blockchain technologies to drive innovation across numerous industries.
- The currency capitalization of Bitcoin is over $10 billion.
- Even financial institutions have shown willingness to experiment with blockchain technology to drive operational efficiencies and venture into untapped markets.
- With validation in mostly western countries, Bitcoins face restrictions in Asia, that has made its global acceptance questionable.
- E-commerce can positively impact the value of cryptocurrencies.
- Excessive regulations and tapping of liquidity by nation-states are driving people towards use of cryptocurrencies exceedingly.
- Not just consumers, legitimate businesses and companies have started using bitcoins.
The astronomical growth of Bitcoins is accompanied with challenges:
- There are issues regarding safety, reliability, and scalability of cryptocurrencies. They might not ever be able to replace credit cards.
- They can be electronically stolen in rare occasions where there shall be no recovery or redressal.
- Relatively few merchants use cryptocurrency interfaces and hence their usefulness as a currency might remain limited.
- The benefits of decentralization and transactional anonymity has made bitcoins a perfect weapon of extortion by black-hat hackers. They are even used in illicit activities such as money laundering, drug peddling, smuggling, weapons trade, etc.
Although there are fears of it being crashed or wiped out, such cataclysmic event might never occur, and fears overcome by technological advances. Investment options can be re-considered, but the outstanding and exceptional growth this technology has demonstrated is unparalleled.