What is Cryptocurrency?
A cryptocurrency is a form of digital currency that uses the techniques of cryptography to secure the integrity of the currency. Because of their sophisticated security feature, cryptocurrencies are almost impossible to counterfeit. This makes cryptocurrencies the ideal currency for online transactions where security is paramount. Nevertheless, it is not the robustness of cryptocurrencies securities which makes them so attractive to those who adopted them. Rather it is the decentralized nature of cryptocurrencies that draws people to them. Because they are not controlled or administered by any central monetary authority, this makes cryptocurrencies immune to government manipulation or interference.
History of Cryptocurrencies
The first cryptocurrency that gained widespread acceptance is Bitcoin. It was first introduced to the world in late 2008, by an individual or a group of individuals that went by the pseudonym Satoshi Nakamoto. To this day, no one knows the true identity of the creator/creators behind Bitcoin. The driving force behind Bitcoin was the concept that digital currency can become an alternative form of payment with lower transaction fees due to its high-security features. Today the market capitalization has exceeded more than $70 billion with the value of Bitcoin reaching as high as $4,400 (August 2017) per coin. The success of Bitcoin has also spurred the development of other cryptocurrencies such as Litecoin and Monero. As of 2017, there are more than 900 different types of cryptocurrencies existing on the internet today.
The Technology behind Cryptocurrencies
At the core of cryptocurrencies such as Bitcoin is the blockchain technology. The blockchain is essentially an online public ledger which records all the transactions that were made using the Bitcoin cryptocurrency CFD. This blockchain ledger is then stored on servers all over the internet, making it extremely difficult for anyone to try to alter the blockchain ledger. While the decentralized nature of Bitcoin is one of its key strengths, it also represents one of its key weaknesses. Because cryptocurrencies such as Bitcoin does not have a central repository, a cryptocurrency balance can virtually be wiped out due to a computer crash. And if a back copy of the balance does not exist, then the holding of the cryptocurrency will essentially be lost forever. Furthermore, despite the robustness of cryptocurrencies digital security, they are not immune to attacks and theft by hackers.
Legality of Cryptocurrencies
While cryptocurrencies are readily accepted by many netizens as an alternative form of payment on the internet, it is not the same case for governments. Because of the lack of control over cryptocurrencies, many governments are reluctant or are against the adoption of cryptocurrencies over fiat money. In countries such as China, Russia and Bolivia, Bitcoin is either banned or restricted in its form of usage. In other countries such as India, Malaysia, and the United States, the legal status of cryptocurrencies is still unclear. In the United States, the Internal Revenue Service (IRS) has classified cryptocurrencies as “properties” as opposed to being money. The legal implication of this is the fact that cryptocurrencies are subjected to capital gains tax. Until governments around the world have taken a definite stand towards the legal status of cryptocurrencies, there will always be confusion as to what role cryptocurrencies will play in our society.