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Decoding Crypto currencies: Part 1
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Decoding Crypto currencies

Crypto currencies are a global phenomenon unknown to many people today. There is a lot said and understood and much left ignored or misunderstood due to lack of awareness. Let us try to decode what exactly is a crypto currency.

A crypto currency is a digital or virtual currency designed to work as a medium of exchange. It uses cryptography to secure and authenticate transactions as well as to govern the creation of new units of a particular crypto currency. Crypto currencies are so called because the consensus-keeping process is ensured with strong cryptography. It is because of this feature it is difficult to counterfeit. The first popular and most valued crypto currency is Bitcoin.

History:

There had been attempts in the past to create a digital currency during the dot com bubble and after that too, but nothing worked due to reasons ranging from frauds and financial problems.

In early 2009, ‘Satoshi Nakamoto’ a pseudo-name for an anonymous programmer or a group of programmers, launched ‘Bitcoin’ describing it as a ‘peer-to-peer electronic cash system’, which was first of its kind to gain popularity and acceptance from people. Unlike paper currencies, Bitcoins cannot be minted, they can only be mined.

Its features include:

  1. Decentralised: There are no servers involved meaning no central controlling authority.
  2. Introduction of Blockchain: After eliminating the need for a central authoritative figure, crypto currencies transactions are done via Blockchain. Bolckchain is a concept that means a public ledger of all crypto currency transactions taking place on the network, keeping a record of the balances, available for everyone. This solved the problem of double spending which was done by the central authorities for smooth functioning and completion of transactions.
  3. Accepted mode of payment: In the beginning it was difficult to transact through crypto currencies, but many merchants accept Bitcoin as a payment for goods and services now.
  4. Minimal fees: Since no banks are acting as intermediators or facilitators of exchange, there are minimal processing fees as the transfers directly happen between the buyers and seller.

Drawbacks:

  1. Threat of hacking: Since crypto currencies are traded digitally and are themselves digital cash, they have high risk of being hacked. Recently, in June’18, South Korean crypto currency exchange Coinrail was hacked and investors lost over $40 million worth of altcoins and assorted tokens. South Korea is top spot for crypto investments.
  2. Medium for illegal activities: With the feature of anonymity, it may be used for nefarious activities like money laundering, price rigging and tax evasion. Many economists support this argument by stating that Crypto currencies are short-lived fad or another bubble that could burst anytime.

Bitcoin, which is still in a nascent stage, experienced rapid surges and collapses in value in December 2017 when it topped the technical charts at $19870 and dropped to $10875 on the same day. It currently trades in the range of $7800-$5700 since past month with day’s closing of $6667.1 on 9 July’18. Since prices are based on supply and demand, the rates fluctuated widely.

Decoding Crypto currencies: Part 1

Source: investing.com

 

Currently there are more than 1600 crypto currencies in circulation globally with price ranging from $0.00698 (ENT Cash) to $6687.2 (Bitcoin) as on 9 July 2018. The top 5 crypto currencies with their market capitalisation are as follows:

 Decoding Crypto currencies

Fund raising for new crypto currencies:

When a company wants to list its shares on the stock exchange, it brings out an IPO (Initial Public Offering) where it invites the public to purchase its shares for the first time. Similarly, to list a crypto currency, an ICO (Initial Coin offering) is brought out, inviting the public to purchase that crypto currency. Nowadays, start-ups use this as an unregulated means to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks.

More information on the current status of Bitcoins and their impact on the financial markets will be shared in the next blog post.

To Read next post in the series, Click Here

 

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