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Cryptocurrency consists of two words “Crypto” which means “Secret” and “Currency” which means “A system of money used at a particular place” or “Medium of purchase of goods and services”. Hence cryptocurrency is a type of digital currency made from a secret code, which can be used as an exchange for buying goods and services. In simpler words: Let’s suppose you wanna buy a Phone, so handing the seller the required amount in terms of U.S.D($) or Rupee (₹) or any other type of currency, you can use cryptocurrency instead. More precisely, If the Phone costs $150 then you can hand them a crypto coin worth $150. However, there is a wide range of coins in cryptocurrency which are available in the market about which we can gain knowledge as we dive deeper into it. Moreover, the technology through which the whole concept of cryptocurrency is developed is known as Blockchain technology. Now the transactions which are done through cryptocurrency worldwide needs to be maintained in a database for security and integrity purpose. Hence that database is operated by a bunch of people who are interconnected through a network called a peer-to-peer network. So, cryptocurrency has no physical form and only exists in the virtual network. Likewise, it is created by the process known as mining, but all these things are dealt with on a network and have no physical presence. Mining needs different hardware which needs to be associated with the PC, it also requires high internet connectivity, electricity and so on. In short, mining consumes a lot of resources that are non-eco-friendly and harms the environment. Besides, the best virtue of cryptocurrency is that the identity of people doing transactions remains anonymous to everyone, whether it be the person maintaining the database or whether it be anyone else, it remains secured through encryption techniques. Finally, a very simple and common example for elaborating cryptocurrency a bit more is the example of a casino. At the casino, the general process is:
Step 1: Exchange your money in the form of casino-authorized chips (Provided: You get the chips of the value of your money)
Step 2: Use the chips to play and gamble in various games available at the casino
Step 3: At the end again exchange the coins you are left with, for the money (Provided: You get the money of the value of the chips)
Similarly, cryptocurrency can be used for buying products as an alternative to the money we use every day. The value of various coins of cryptocurrency is decided by the simplest business rule i.e. “DEMAND AND SUPPLY”. So, depending upon the demand and supply of a particular coin, its worth is decided. Say, for instance, today the price of DOGECOIN is $2 and suddenly due to some issues its mining decreases drastically, as a consequence the supply decreases but the demand remains the same, so ultimately the price of DOGECOIN increases. Hence the valuation of coins also depends upon various external factors. Knowledge about these external factors is again a huge topic in itself.