Cryptocurrencies are digital assets used in order to exchange goods in services in much the same way that all other forms of currency are used. However, because of the ephemeral nature of a digital currency that only exists on a computer screen, there are a variety of characteristics that distinguish cryptocurrencies from their more traditional counterparts. The most important part of establishing any kind of cryptocurrency is security, for somewhat obvious reasons. Cryptocurrencies rely on encryption and cryptography to secure all financial transactions, control the creation of more of the currency, and to verify that transactions have occurred. Without strong cryptography, it is impossible to prevent theft and fraud on a level that would render the cryptocurrency worthless.
One of the main defining characteristics of a cryptocurrency is a form of decentralized control, as an alternative to a centralized digital currency or the current banking system being used across the world today. The way that this works is almost always through something called a blockchain. A blockchain is a constantly growing list of recorded data, which are called blocks, which have all been linked together through the use of cryptography. Blockchain was invented in 2008, by someone (or possibly a group of individuals) using the name of Satoshi Nakamoto, for the purpose of being used by Bitcoin. Bitcoin was the first cryptocurrency to become widely used throughout the world, and remains the most popular of the various cryptocurrencies today. The reason that blockchain has so quickly become used prevalently throughout all of the various cryptocurrency services is because of the simple but ingenious way that it is resistant to the modification of the data that it contains. Because of the fact that each block in a blockchain contains a cryptographic hash that links it to the block that comes before it, the data in any given block cannot be changed without making it obvious that the blockchain has been tampered with. The fact that there are time stamps recorded within each of the blocks as well, it is even more difficult to interfere with the transaction data without any evidence being left behind.
While many individuals believe that cryptocurrencies are going to be the future of all financial transactions one day, that opinion is not popular among economists and other financial experts. There are numerous problems that cryptocurrency users will have to overcome in the future. One of the primary issues with the use of cryptocurrencies is a lack of stability in the currencies themselves. It has been publicly stated by no less than eight individuals who have received a Nobel Prize in economics that bitcoin and other cryptocurrencies are simply an economic bubble, doomed to inevitably collapse and send the value of the currencies to essentially nothing. Even if these claims from some of the world’s greatest economic minds prove to be false, bitcoin specifically has a documented history of extreme volatility. More than once the value of an individual bitcoin has plummeted, decreasing by more than fifty percent in an extremely short period of time.
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