Cryptocurrency, lots of people are talking about it. Also investing in it. In the market, there are lots of cryptocurrencies invented like bitcoin, etherum, dogecoin, etc. But what exactly is cryptocurrency? and how is it different from fiat currencies like INR, Euro, etc.
What is cryptocurrency?
What is cryptocurrency? but before that, we need to understand what is currency? Currency is a just medium of exchange for goods and services. It’s money in the form of coins and paper. usually issued by the government.
A cryptocurrency is a medium of exchange but it is digital or virtual, encrypted and decentralized. This means no one can control this currency.
Why is a cryptocurrency invented And Why it is needed?
History of Barter System
If you look at history, there was a barter system in which if people want something they exchange it with other goods and services they have. For example, if you want an egg then you exchange it with 100g rice with another party.
There was a problem in it like, if you want 50g rice then another party can’t give you half egg. Means impossible to divide into parts. You can’t store lots of eggs, rice, etc for the exchange of goods and services.
Gold Standard Of Currency
To solve these issues, gold was introduced. And later gold becomes a medium of exchange. If now someone wants 50g rice so they can exchange it with gold. But again they had to cut gold for little exchange of goods and services. Of course, they couldn’t do it all the time.
So one man went to the government and gave the government gold and said ‘can you give me something whereby people believe I have that much amount of gold?’ The government said yes. Form here currency was invented. Back then every currency against there was actual gold deposited somewhere.
Therefore government write on the note “I promise to pay the bearer the sum of _____ rupees”
Problem with currency
Thus there is only one government and central bank, they can print lots of money. Because they can print lots of money so it increases inflation. Whereby the value of money decrease and people have to pay more for the same thing.
Also, they can make major decisions about currency. Such as On 8 November 2016, the Government of India announced the demonetization of all ₹500 and ₹1,000 banknotes of the Mahatma Gandhi Series.
On 31st October 2018, Bitcoin was invented by Satoshi Nakamoto. They come up with the idea of decentralization. In which no one can own or control. and currency is genuinely spread out democratically.
21 million bitcoin have in the market. Thus there is no one can control this so bitcoin is limited. Of course, its value could be increased but not its quantity.
Types of cryptocurrency
There are lots of cryptocurrencies in the market. All currencies have different purposes and values. some of the currencies are:
Litcoin is the first coin that came after bitcoin, launched in 2011. With Litcoin you can make payments peer to peer anywhere in the world, near-zero cost payments.
You can use Etherum to create loans, smart contracts, and even pay people in the future but without needing a human to do it.
Other types include Thether, BNB, USD coin, Solana, XRP, etc. All have a different purpose.