Over the last century, the world has seen the most life-changing inventions that drastically altered our way of life today. In the 21st century, the birth of digital assets is considered as one, if not the most, significant developments in the history of mankind. Now, with the existence of cryptocurrencies, payments and transactions can be sent in a cost-effective and efficient way, eliminating the presence of third-parties and red tape.
The dawn of cryptocurrency has truly revolutionized the finance and banking sector as we know it. If before, we can’t imagine the world without banks, now that concept can be considered a possibility in the future if the global adoption of digital assets and the blockchain succeeds.
In 2009, the birth of Bitcoin shocked the world and created a noise in the finance sector. The whitepaper of the Bitcoin was penned by an unknown author under the pseudonym of Satoshi Nakamoto. In the paper, he stated that a virtual currency that can travel through a platform called ‘blockchain’ can solve the red tape, expensive fees, and inefficiency of the banking sector. Soon, after Bitcoin was released to the public, many more altcoins have sprung in the market, driving the global economy to consider new ways of investment and processing transactions.
What is cryptocurrency?
In essence, cryptocurrencies are digital tokens that can travel through a decentralized platform called the ‘blockchain’. Inside this platform, cryptographic codes are used to execute transactions such as sending and receiving assets. Because it’s an open-source platform, the blockchain is decentralized and free from any intermediaries that can control its function. Unlike fiat currencies, digital assets cannot be imposed with transaction fees and limitations by a third party.
The blockchain is made of an intricate web of codes that makes it immutable from any changes or alterations. Once a transaction is recorded in the chain, it cannot be removed or tampered with.
Transactions within the chain are possible because of a consensus mechanism called ‘mining’. Miners are different validators from around the world that solve the equation in the chain in order to approve crypto transactions.
Digital assets can be exchanged between two parties through the use of private and public keys. This peer-to-peer feature is helpful to lessen the imposition of expensive fees that users often pay in traditional banks and other financial gateways.
Top advantages of cryptocurrency in the economy
Traditional banks and financial institutions always take time to process dealings. This is because that third-party presence can lengthen the time of finalizing what should be a straightforward transaction. With cryptocurrencies, this type of interference is instantly eliminated because it allows peer-to-peer dealings that don’t require signatures or paperwork that takes days to get processed.
Private and secure
When using credit cards and other regular modes of payment gateways, the details of the information are logged on the system of the institution involved. Usually, this information is regularly being checked in order to keep track of a person’s history. The beauty of using cryptocurrency is that no information besides your cryptographic address is visible. This can protect your details from being used for unscrupulous purposes.
Less transaction fees
Writing checks, depositing, withdrawing, and sending money all incur unnecessary fees. If you’re regularly processing payments, doing these can take a toll on your finances. One of the benefits of using digital assets is that they eliminate paying unnecessary fees when processing your transactions.
However, using digital assets for your payments can still incur fees if you’re using a centralized exchange. That being said, the cost is significantly lower compared to using regular payment gateways or banks.
It’s easier to send cross-border transactions
When it comes to transactions, cross-border payments are the most expensive and is a hassle due to the high exchange rates. Interest and other transaction charges depend on the country, so the fees vary. Since digital assets are not subject to these international fees, sending money to different countries is faster and cheaper than ever.
Cryptocurrencies introduced exchange platforms
Aside from the impacts mentioned above, digital exchange platforms were also introduced. These places now enable digital purchasing, trading, and selling of crypto assets. Now, for people who want to ‘invest’ their coins, they don’t have to visit a bank anymore just to do that.
They can do it by getting wallets which are protected by codes and algorithms. People don’t have to visit banks anymore just to invest their money. All they need is a phone and internet connected and they can freely access their money without intervention. Additionally, this feat gives full ownership to people over their investments.
Essentially, wallets are programmed to interact with the blockchain. You can find three major types of wallets available in the market. These are hardware, software, and paper wallets. Depending on their functionality, they are also categorized as ‘hot’ or ‘cold’ wallets:
- Hot wallets
Hot wallets are storage for cryptocurrencies that are connected to the internet. Usually, they come in the form of apps that can be downloaded and easily integrated into devices such as phones, tablets, or PCs. This type of wallet is perfect for people who want to easily access their funds.
However, hot wallets can fall prey to hackers because they’re constantly connected to the internet. If you’re planning to use hot wallets, make sure that you don’t put all your funds in it.
- Cold wallets
Meanwhile, cold wallets are storages that come in the form of small devices such as USBs. For people who prioritize their wallet’s safety, cold wallets are the best option since they’re not always connected to the internet. It makes it the perfect place to store huge amounts of cryptocurrencies. Investors who are planning to ‘hold’ their funds for a long time usually use cold wallets. However, people who prioritize accessibility shouldn’t use this wallet because it takes time before funds can be accessed.
- Paper wallets
Paper wallets are the physical copies of a wallet that contains a printed form of the QR code. While this type of wallet is not susceptible to hacking, it can be a bit tedious to use because they cannot send partial funds. Additionally, they can easily get damaged so it’s important to store them in a safe place, preferably covered in plastic.