The need for cryptocurrency?

In an era of the Digital world and online transactions, Cryptocurrency is a term that has been in the limelight in the market since 2010. Initially, this was an ambiguous term which was very difficult to understand. It was understood as a platform of investment that suddenly erupted from the air however it is far from reality. It has its history and its special process of transaction. What is cryptocurrency? Why is it in the limelight? How it works? How safe is it for investments? The series of blogs shall cover the basics of cryptocurrency that evolved. First, we shall delve into its evolution to understand why it came into the market. Then we shall move towards its fundamentals and its social aspects. We shall cover this complex phenomenon easily in some series of blogs.  

Evolution of cryptocurrency 

In any economy, the production and distribution of material wealth is something to be considered as the primary goal. Everyone here requires a variety of material goods but cannot produce everything. Thus, we tend to get involved in the exchange process. This exchange process has its stages: – 

Barter system: –  

When the economy was in its initial stage people used to exchange goods and services in return for goods and services. It means that If I need a cat and I have shoes then I must find a person who needs shoes and is ready to give his cat in exchange. It seems to be a very difficult and time-consuming task that demands a further revolution in the market. 

Entry of metal coins 

Thus, we tended to find some representations of the value of goods that can be carried. No one has the time to find a person who needs a cat. Thus, we found some metal coins which can act as denotations of value paid. These metals, since they are limited in numbers, can have their value which can equate to the value of goods and services and thus can be exchanged altogether. It was also a decentralized system used for the transaction process. 

Evolution of banks and currency notes.

Then with time, institutions such as banks evolved which led to the generation of currency as legal tender. It means that a place will be specified where everyone can put their money and can withdraw on demand in case of ‘demand deposits’. The method of transaction here changed to currency notes and coins which themselves have no value. They are valuable just because the government claims that they are valuable. As in the case of demonetization, if one day the government claims that from now on this note is not a legal tender, that currency will lose its value. 

Currency notes, depending on the demand and supply of goods and services, international trade and the overall economic situation of a nation, can gain and lose their value.

Currently, because of the strong economic and political dominance of the USA, US dollars are taken as the standard for whether the currency of a nation has appreciated or depreciated and in what ratio. However, this trend is now changing and the Chinese yen, Russian rubles and Indian rupees are also in the limelight for standardization to decrease the polarization towards the USA.  

Thus, it is the bank here that keeps the record of transactions, and they are under the control of the Central Bank. Central banks work under the government thus making the transactions and value of money depend on the system working there. 

Rise of cryptocurrencies 

One of the major problems with using the currency (legal tender) and banking system here is that they have control of our money. Banks have complete data that shows how much money I have, where I am spending it and how much raise I am getting. Even in some special cases, if the government wants it can restrict its uses. It means till now, we have just earned and given our money to a centrally controlled system to keep it safe and tend to use it as per our requirements. 

However, such kind of transactions have created a sense of dissatisfaction among the wealth holders. The problem is that if I have earned the money, why should a system have control over it? Thus, it leads to the emergence of a need for a decentralized system to control the money we have. 

After the sudden dissimilation of computers, it created an idea why not have a system of records that would work on Unanimous Consensus.

It means rather than providing records to banks let’s have a unanimous record of transactions and a decentralized system that will entirely work based on demand and supply. Here the government will not have any control and we can freely use this currency as per the market principles. 

Here is the place where cryptocurrencies are raised. This is the same principle that follows and solves this raised problem. 

What is cryptocurrency? 

In an era of this digital world, we created a system where we hold a form of digital and decentralized currency known as cryptocurrency. It works with cryptography to maintain security. Cryptography is a field of study where we convert plain text to a code or cypher text that we can’t understand with our known language. Thus, programmed language ensures the security of data in public spheres.

It means if we have done any transaction with this currency. When it tends to get stored publicly it will have a specific code that will contain the data for security here. 

Just like UPI payments in India, these kinds of currencies are accepted as a medium of payment in many countries. It is somewhat the same, however, the difference is that Upi payments happen through banks which are centrally controlled whereas cryptocurrency is a decentralized medium of transactions. Many such currencies exist such as Bitcoin, Ethereum, Litecoin etc.  

In a nutshell and way towards part 2 

This is an aspect that does require some detailing to have an insight.  In this blog first, we had a glimpse at why the need for cryptocurrency arose and how it evolved. Thereafter we have understood what this cryptocurrency is. However nowadays it is a platform of investment. So, what made it a platform of investment? What is the technology behind it and how viable is it to invest? All such aspects shall be covered in the next part of the blog provided below: – https://www.dutimes.com/what-is-cryptocurrency/

References

pexels, https://www.drishtiias.com/to-the-points/paper3/cryptocurrency-9