All about cryptocurrency!
Cryptocurrency is a virtual currency that can be used to purchase goods & services. It is a digital payment system, which is secured by cryptography, i.e., protecting information through the use of codes. The transactions done via this currency are verified using encryptions; hence, the name, Cryptocurrency.
What makes it so special?
Cryptocurrency makes use of blockchain technology. In this, a growing list of records, a.k.a blocks, are linked together using cryptography. This means that the transactions carried out via cryptocurrency are recorded in a public ledger. Further, this ledger is duplicated and distributed across the entire network of computer systems on the blockchain. Due to this feature, it becomes difficult, at times, nearly impossible to change, hack or tamper with the system because hackers wanting to corrupt a blockchain system would have to change every block in the chain, across all the distributed versions of the chain.
Cryptocurrency is denominated in terms of ‘token’. It is stored in a digital/crypto wallet, which can be broadly categorised into hot as well as cold wallets. The main difference between the two is that hot wallets are connected to the internet whereas, cold wallets are not.
The crypto wallet is software that keeps a track of public and private keys. The private key enables a user to access and transfer funds. On the other hand, the public key is shared publicly to receive crypto funds. Hence, these keys are necessary for facilitating transactions. Furthermore, these keys are the only way of proving ownership to the crypto funds. Losing these keys would result in losing control over crypto assets and tokens.
Cryptocurrency vs fiat currency
Fiat currency is government-backed security. Hence, it is recognised as a legal tender. On the contrary, cryptocurrency is not recognised by the Government of India. It is legal but unregulated at present. There are talks that the government plans to bring in the ‘Cryptocurrency & Regulation of Official Digital Currency Bill, 2021’. This bill will further provide clarity on the currency’s future in India.