Digital financial system
Cryptocurrency. Afascinating world full of complex terms and terminologies that confuses even the most tech-savvy person. If you’ve just entered the strange world of cryptocurrency, chances are you don’t really know what anyone is talking about. Never mind, we’ve covered a few necessary things you should know.
In this article, we will learn some of the most important building blocks that make up the online financial system and help you understand what a cryptocurrency is.
Creating a block No 1: The definition of a cryptocurrency
Simply put, a cryptocurrency is a digital currency based on cryptocurrency. Crypto and now? Encryption is basically a computer-based method of protecting important information using special code. Don’t worry, understanding the complex nature of technology here isn’t very important, but the underlying consequence is:
Cryptographicaffixing makes cryptocurrency almost impossible to manipulate or counterfeit. This means that there is no counterfeiting and no double expense.
Creating a block No 2: Cryptocurrency as money
In short, cryptocurrencies are a new form of money. They are focusedon economics and that is why “currency” is part of the word. You can store your money (in the same way you can traditionally store money ), you can save money transfer (in the same way you can traditionally send money digitally) and spend it to retailers who accept it.
So why not just use traditional money? Why bother withcrypto ? Well, with cryptocurrencies there is a special small twist that sets them apart from traditional currencies.
The difference between traditional money and cryptocurrencies is that cryptocurrencies are designed to solve some of the problems facing the financial system as we know it. Some of the problems that need to be solved include:
- In general, banks and brokers receive a commission as payment for storing your money or for the transactions you make.
- The involvement of a third party of a central entity (such as a bank) also means that you have no real ownership of your funds. But surely this money is yours, right? Well, when they’re audited by a third party, you don’t actually have full control over your cash.
- Just as the exchange for chickens is an outdated payment system, bank transfers and credit cardsfall by their expiration date. With wire transfers, it’s hard to send money around the world without facing huge fees, and credit cards rely on a debt and interest system, two things that no one likes.
- There is a huge problem of financial inequality around the world and unfortunately, it is only growing.
- There are literally billions of people who don’t have a bank account (meaning they can’t access financial services and rely only on cash).
Creating a block No 3: The benefits of a cryptocurrency
Ok, now you know the basics. If you still need littlecredibility that digital currencies offer a better solution for payments than traditional money, check out some advantages that are unique to cryptocurrencies.
You are financially independent with crypto
This is quite important: With traditional cash, central banks almost control your money. It is something that we know. This means that your money can be blocked at any time and you can lose access to your money with the click of a button. Some countries, such as India and Zimbabwe, They have simply changed the way they minted money and abandoned their currency or banknotes when they needed it.
Cryptos reduce money printing
If a government faces an economic problem such as a lack of cash, it can simply continue to print money to save the country from debt. The problem with this is that it helps her temporarily. It’s like putting lipstick on a pig. Trying to cover up problems that have to do with money simply by having more money can make things look better, But, rather, the situation is still a bit like the case with the pig at the end of the day.
However, on the other side of the coin, cryptocurrencies usually have a limited supply, and when all coins are in circulation, there is no way to create more. This means that the cryptocurrency will not lose its value due to an overcrowded market.
Withcryptocurrencies, this is simply not a problem to worry about. You have complete financial freedom. The only person who can access your cryptocurrency funds is you, and the only time you need to worry about that is if you lose access to your private keys.
Cryptos offer services for those who do not have access to banking services
As mentioned above, there are too many people around the world who do not have access to banking systems. Cryptocurrencies offer a solution to this problem: Anyone with a mobile phone can make payments with crypto. Since more people have smartphones than access to banks, cryptocurrencies are opening up a brand new payment system to those in desperate need of it.
Creating a block No 4: The difference between traditional currencies and cryptos
With traditional money, your funds rely on the government and rely on banks for protection. You need a connection to the bank for digital transfers or an ATM to make your money, and if there is a problem, you will get a headache trying to solve it.
Cryptocurrencies cut off the middleman, and instead of relying on a central bank, they rely on smart technology. Specifically, blockchain technology.
Creating a block No 4: How a cryptocurrency works
Without diving deep into the technology behind cryptocurrencies, here’s an important lesson on how cryptocurrencies work:
Cryptocurrencies are based on something called blockchain technology. A blockchain is essentially just a special kind of database that stores important information in small groups called “blocks.” These blocks are connected to each other in turn to form a chain. (blockchain = a blockchain with blocks . Those who deal with crypto tend to use the simplest terms, even though the technology is complicated.)
What is important here is that each block acts as a new storage file or a new entry. When someone trades cryptocurrencies, they have access to the entire storage file. It’s like a shared library where everyone has the same copy of the record book.
But if everyone has a copy, then surely everyone has access to my money right?
Important question but the answer is no. Since the blocks are encrypted to create a unique unsolvable puzzle, your money is safe! Anyone can access the public record, but only you have access to your private keys i.e. your own unique way to get to your cryptocurrency.
If your key remains private, which is extremely important, no one else has a chance to manipulate any of your transactions. Think of it like your bank pin, in addition to being, much more secure. And that the magic of cryptocurrencies, that give the power back to people and provide all of us with a financial freedom.