“A cryptocurrency is a digital asset designed to work as a medium of exchange that uses cryptography to secure its transactions, control the creation of additional units, and verify assets’ transfer. Cryptocurrencies use decentralised control as opposed to centralised electronic money and central banking systems.”
This is Wikipedia’s definition and I like it because it accurately introduces the concept of the “digital asset” and “decentralised control” – which is where most of the concerns, confusion, misconceptions and trouble starts in the world of cryptocurrency.
To understand why the trouble starts here, we must understand one more thing: fiat currency. And no, I am not talking about the car company. Fiat money refers to the traditional currency system that we use every day. It’s a regulated currency whose value is centrally controlled by governments/regulators (eg central banks). Typically it is what is described globally as “legal tender”. At this point, some financial scholars, economists and those beholden to traditional economic precepts may chastise me for oversimplifying this, but I will invoke Occam’s razor here.
Types of cryptocurrency
Bitcoin is not the only cryptocurrency in existence but it is probably the most popular and best known. There are well over 1,500 cryptocurrencies, the most popular being bitcoin, ethereum, litecoin, ripple, monero, stellar and dash.
Pros and cons of cryptocurrency
Pros: Fraud reduction, anonymity, faster transaction time, lower/zero transaction fees, secure, decentralised and no more middleman (eg banks, financial institutions)
Cons: Limited knowledge and understanding, anonymity, volatility and uncertainty, lack of global acceptance, limited transaction reversibility and no more middleman (eg banks, financial institutions).
Cryptocurrency, bitcoin, and its siblings (over 1,500) are causing shock waves throughout financial markets. They are also poised to rattle the fundamentals of economies and traditional banking systems globally in good and, in some cases, wrong ways. This is a source of consternation for governments and central banks, and understandably so because changing the status quo to one where it appears they have less control is not readily entertained. However, this cannot be the sole reason for not embracing the possibilities and benefits that abound.
Trevor Forrest is CEO, 876 Solutions and a certified blockchain architect with over 29 years of experience in the IT Industry in Jamaica and overseas.