Properties of Cryptocurrencies
Cryptocurrencies have many comparative advantages over traditional forms
of online financial transactions. Using one medium (the Internet) to connect to
a unified global financial system may seem like a futuristic idea, but with
digital currencies, it's not so far off.
Cryptocurrencies are unique and distinctive in their potential as a
financial investment — an asset. According to information provided by the
Organization for Economic Co-operation and Development (OECD), an asset is a
specific property that allows its owner to retain the value of a valuable
commodity, and its storage provides economic benefits. And also provides the
right to receive other benefits, and
use. However, despite not being a reliable store of value, cryptocurrencies do
not have a stable purchasing power over long periods of time, unlike fiat
money. In addition, digital currencies are not able to ensure that the owner
receives a series of payments, unlike other investment items such as real
estate, stocks or bonds. It is the inability to monetize possession of this
digital asset that explains the lack of intrinsic value in cryptocurrencies. On
the other hand, cryptocurrency is able to generate income for depositors due to
changes in market value—a factor that is one of the dominant factors in shaping
demand in a particular cryptocurrency market.
The strong price growth of cryptocurrencies since their creation has
attracted the interest of many investors who demand these assets not for
transactional reasons but for investment reasons. However, cryptocurrencies are
primarily considered as assets rather than currencies (Baek & Elbeck, 2015;
Cheah & Fry, 2015; Dyhrberg, 2016).
How many followers does crypto have? The bigger the community, the more
valuable it should be. Check the coin's Twitter handle to gauge the size of the
community. Reddit is another great platform to check out for crypto related
news or general discussions about coins.
Cryptocurrencies are Pseudonymous
Cryptocurrencies
are not completely anonymous. All transactions have an audit trail and can be
linked to the originator. Although some central banks are uncertain about the
utility of cryptocurrencies as a product, there are many websites that accept
cryptocurrencies as legitimate payments. Therefore, they are neither anonymous
nor illegal.
Bitcoin
is pseudonymous rather than anonymous because the cryptocurrency inside the
wallet is tied not to people, but to one or more specific keys (or "addresses").
Thus, Bitcoin owners are not identifiable, but all transactions are publicly
available in the blockchain. Still, cryptocurrency exchanges are often required
by law to collect their users' personal information.
As a
bottom line we can say that anonymity and concealment are important aspects of
cryptocurrencies. Few of them have stood out for their ability to ensure that
all purchases are executed with due diligence and integrity without any
interference. We must draw an analogy with real-world transactions
traditionally conducted with fiat currency.
Many
cryptocurrencies, such as Bitcoin, cannot explicitly use such secret, encrypted
messages, since most of the information that Bitcoin transactions contain is
largely public. However, there are also privacy-oriented cryptocurrencies such
as ZCash and Monero, which can use encryption to obscure the value and
recipient of a transaction.
Although
they claim to be an anonymous form of transaction, cryptocurrencies are
actually pseudonyms. They leave a digital trail that agencies like the Federal
Bureau of Investigation (FBI) can decipher. This opens up possibilities for
governments or federal authorities to monitor the financial transactions of
ordinary citizens.
Cryptocurrencies are Decentralized
Although not all cryptocurrencies are decentralized, Bitcoin for example
is. Bitcoin is not subject to government or institutional control.
Decentralization is one of the key features that separates Bitcoin from
traditional fiat currency, which is issued and controlled by central banks.
Cryptocurrencies are powered by a technology called blockchain.
Blockchain is a digital ledger that records cryptocurrency transactions in a
secure and tamper-proof manner. Each transaction is added to the blockchain as
a "block", creating an immutable record of all past transactions.
Think of it like a giant, global spreadsheet that lives on computers all over
the world. But this spreadsheet is not controlled by a single person or
organization—it's decentralized, open to anyone to see, and can't be tampered
with.
Unlike government-backed money, the value of virtual currencies is
entirely driven by supply and demand. This can create wild swings that create
significant gains or huge losses for investors. And cryptocurrency investments are
subject to much less regulatory protection than traditional financial products
like stocks, bonds, and mutual funds.
Cryptocurrencies can easily fulfill a financial function as a medium of
exchange because they are electronic currencies and can be used by any device
connected to the Internet. Fulfilling this role logically is one thing, finding
demand for its use as a medium of exchange is another matter, which is
complicated by securing demand as a store of value or unit of account. Due to
fluctuating demand and inelastic supply, as well as the lack of an entity that
can control supply to maintain a stable value, cryptocurrency is actually
completely ineffective as a unit of account. Unlike national currency issuers,
these issuers are not subject to legislative or electoral controls to ensure
that they do not abuse their power to maximize supply. According to Friedrich
Hayek, private providers of money can compete in a free market and make their
currencies attractive by providing guarantees to maintain their purchasing
power (Hayek, 1990). Of the cryptocurrencies studied here, and arguably, of all
cryptocurrencies, only Bitcoin can attract demand as a store of value, due to
its high reputation for supply and is predictable, and has resisted the
manipulation and flexibility shown over the years, since its
existence. It is possible that Bitcoin will continue to grow in popularity as a
store of value and expand its use as a medium of exchange, but the same cannot
be said for other digital currencies, which appear to be stores of value or as
a unit, they provide little benefit, account, and is therefore unlikely to gain traction as a medium of
exchange.
Cryptocurrencies are Open-Source
Availability
of open source for application development of cryptocurrencies makes it
possible to expand the range of use of the blockchain protocol and enables
third-party developers to create programs that integrate into sectors of the
economy and social activities in general.
It can
be concluded that the cryptocurrency market is constantly evolving, developing
both technical and technological aspects of its systems. New digital currencies
are appearing, and existing ones are being improved. Competition in the digital
currency market is fragmented and can only occur in market currencies designed
for use outside the framework of a system. Internal competition has created
three main directions for the sustainable development of cryptocurrencies:
altcoins, which mimic Bitcoin in their own right, stablecoins that are "pegged"
to a specific fiat currency, and cryptocurrency systems that developers allow
users to build applications to use these platforms, in various industries.
According to the results of the analysis, the most effective and promising
cryptocurrency is EOS with the platform of the same name, which has the lowest
commission among the analyzed digital currencies and allows you to integrate
third-party applications into the system. In terms of daily turnover in the
market, operations with Bitcoin are also ahead. This is due to the high
volatility in the market, which allows cryptocurrency to be used as a tool for
speculation. Despite its investment appeal to investors and speculators,
cryptocurrency has a number of characteristics that distinguish it from fiat
money and financial assets. On the other hand, the main disadvantage of
cryptocurrency is the complexity of its prediction and the impossibility of
using it as a means of deposit or payment as freely as legal currency. The main
implications of this paper are a theoretical foundation for future research in
cryptocurrencies. Further studies will focus on incorporating other factors
into a similar theoretical framework and developing new methods for model
integration in crypto market forecasting.
Although
there have been several attempts to create cryptocurrencies since the tech boom
of the 1990s, Bitcoin is the first to gain widespread public recognition.
Leveraging open-source peer-to-peer technology, Bitcoin transactions and
issuance are managed collectively by the network, effectively eliminating the
middleman.
It was
found that Bitcoin is the first representative of the cryptocurrency sector.
The system appeared in 2008 with the aim of developing the asset as a global
means of payment. No one owns or controls the Bitcoin network, the system has
an open system code, and thus anyone can participate. Unlike Bitcoin, Ethereum
aimed to develop a smart contract platform. The network, launched in 2015, was
characterized by its open-source presence, suitable for the development of
third-party decentralized applications. Ethereum is a pioneer in the
development of blockchain-based smart contracts. When launched on the
blockchain, a smart contract becomes like an automated computer program that
automatically executes when certain conditions are met. Open-source code allows
developers to implement the system into their own business processes, giving a
strong competitive advantage.
Cryptocurrencies are Digital
Cryptocurrency
is a type of digital asset that is an intangible, digital currency that uses a
highly sophisticated type of encryption to secure and verify transactions as
well as control the creation of new units of currency, called cryptography. It
is designed to act as a decentralized medium of exchange, independent of a
financial institution or any other central authority. Although Bitcoin is the
most well-known cryptocurrency, it is not the only one. Other major types of
cryptocurrencies include Ethereum, Ripple, Bitcoin Cash and Litecoin. There are
also other digital assets (or "crypto-assets").
Still,
cryptocurrencies have some characteristics of financial assets and fiat money,
but cannot be equated with them today. Many countries are actively promoting
the development of payments using cryptocurrencies, so digital currencies are
already partially a means of payment. If we deviate from the standards and
rules of the current global payment system, the existence of agreements between
paying agents about the payment method in practice may be more important than
the legal protection of the issue. But if the terms of such transaction are
mutually beneficial for the participants.
PayPal
and e-money are digital currencies that can be denominated based on fiat
currency and exchanged in the real economy, and digital currencies that cannot
be denominated in legal tender. They are called virtual currencies.
Cryptocurrencies
can be used to pay for goods and services, as well as to invest in certain
areas around the world. In this respect, they are similar to physical postures.
However, unlike fiat money, cryptocurrencies have no physical form, have not
been declared legal tender in the United States, and the majority are not
backed by a government or legal entity. In other words, the supply of
cryptocurrency is not determined by a central bank. Therefore, customers
participate in the transaction directly without the involvement of an
intermediary, which would normally be a bank. It should be noted that although
cryptocurrencies can be used legally in many countries, there are some that
prohibit transactions in cryptocurrencies and others that make it illegal and
punish those who do so.
Cryptocurrencies are Secure
Cryptocurrency
is held in a digital wallet. A wallet is identified by a long set of random
letters and numbers. This is called the private key, which allows the owner of
the currency to withdraw coins from the wallet. Keeping the private key safe is
an important step in protecting your digital funds.
Transactions
with these currencies are direct between users and generally anonymous (Miers
et al. 2013), compared to fiat currencies in which payments are made through
banking networks. Hence, anonymity has been an important factor since their
inception (Ober et al. 2013). Although the development of cryptocurrency has
not always been uniformed and not all types of cryptocurrencies behave the
same, the complexity of the breach of anonymity is equal to the breach of their
security (Wang et al. 2018). Privacy and security are mechanisms that, although
considered robust, need to be refined to add new functionality as their use
evolves because their standardization makes them attractive to hackers (Conti
et al. 2018; Feng et al. 2019).
At the
same time, there are many caveats about cryptocurrencies that can be misused
for illegal goods and services, fraud, and money laundering. The anonymity
associated with the use of virtual currencies (such as Monero, for example)
increases the potential for potential abuse.
Ethereum
is one of the safest safe havens for commodities. However, our findings have
increased our knowledge of the potential of cryptocurrencies to outperform
Bitcoin and serve as a safe haven during the COVID-19 period.
Conclusion
Cryptocurrencies
are digital or virtual tokens that use cryptography to secure their
transactions and control the creation of new units. Cryptocurrencies operate as
part of a blockchain, which is essentially a series of blocks that are linked
together and record the history of each transaction for that block. They are
also decentralized, meaning they are not subject to government or financial
institution control.
A
cryptocurrency is a digital asset designed to serve as a medium of exchange
that uses cryptography to secure its transactions, control the creation of additional
units, and verify the transfer of assets. Cryptocurrencies are a category of
digital currencies, alternative currencies and virtual currencies. It is always
doubtful whether they will ever become a mainstream currency.
Cryptocurrencies
are digital or virtual currencies operated by cryptographic systems. They
enable secure online payments without the use of third-party intermediaries.
"Crypto" refers to the various encryption algorithms and
cryptographic techniques that protect these entries, such as elliptic curve
encryption, public-private key pairs, and hashing functions.
Cryptocurrency,
sometimes called cryptocurrency or crypto, is any form of currency that exists
digitally or virtually and uses cryptography to secure transactions.
Cryptocurrencies have no centralized issuing or regulating authority, instead
using a decentralized system to record transactions and issue new units.
Cryptocurrency
is a form of digital currency that uses cryptographic techniques to control the
creation of currency units and validate the transfer of funds. It is not issued
by a central authority which would theoretically make it safe from government
interference or manipulation.
If you want to learn more about this topic, feel free
to leave your valuable comments. We are happy to assist you. All the best for
your future.
(All the material in this article is only the author's opinion, and could
not be considered as "Financial Advice")
Key Words:
Properties of Cryptocurrencies
Properties of Cryptography
Properties of Cryptographic Algorithm
Properties of Cryptographic hash function
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