A cryptocurrency is a digital currency that acts as a medium of exchange. Since the barter system in the Stone Age period, coins have gone through many changes to the paper currency in later years.
The term ‘crypto' in crypto currency comes from the word ‘cryptography.' Cryptography is a technique of using encryption and decryption to safeguard communication in the company of third parties with ill motives. Cryptography requires a computational algorithm, a public key that the trader shares with everybody, and a private key, which acts like the trader’s digital signature, which the trader keeps secret.
In Forex Trading, forex traders use cryptocurrencies as modes of payments and trading instruments, forming currency pairs with other cryptocurrencies and currencies.
At this point, the future of currency could be cryptocurrencies. There are two major cryptocurrencies in the market: bitcoin and ether. Bitcoin is a type of digital currency independent of a central authority. The central bank does not regulate the distribution of bitcoins in the market. Instead, bitcoin uses a blockchain to carry out transactions on a peer-to-peer network.
Bitcoins started circulating in 2009, and its success has generated several competing cryptocurrencies called ‘altcoins' or alternative coins. Altcoins include Litecoin (LTC), Name coin, Peercoin (PPCoin), Ripple, EOS, and Cardano, among thousands of other cryptocurrencies.
Ether is a type of currency that the Ethereum network acknowledges. Ethereum runs on blockchain technology to establish an open-source platform to create and redistribute applications that are decentralized or independent of central authority.
Bitcoin and ether are the most significant and most valuable cryptocurrencies in the international market. While bitcoins transactions are manual, ether transactions can be manual and automatic. A trader can use bitcoins for goods and services transactions, whereas ether uses blockchain to create ledgers that activate operations once a trader meets the required conditions.
Litecoin is like bitcoin in that Litecoin relies on an open-source global payment network that is not under any central authority's regulation. However, Litecoin has a more rapid block generation rate than bitcoin since Litecoin uses a different algorithm.
Namecoin is an experimental open-source technology that boosts security, independence from a central regulating authority, censorship resistance, speed of internet infrastructure such as the Domain Name System (DNS), and privacy. Traders can use Name coin to record and transfer random keys or names in a safeguarded manner. It also can attach data to random names. In that regard, Name coin offers advanced privacy competencies.
Peercoin (PPCoin) is one of the leading forms of cryptocurrencies in market capitalization. It is the first digital currency that employs a combination of proof-of-work and proof-of-stake. The proof-of-stake algorithm formulates from the coins that individual traders hold. A trader holding 2% of the currency should receive a reward of 2% of all proof-of-stake coin blocks.
The proof-of-work blocks are less rewarding because the portion of the proof-of-work algorithm requires more intensive energy for generating blocks than the minimal energy the proof-of-stake algorithm uses to create blocks. Consequently, the Peer coin network will become more energy-efficient as proof-of-stake rewards do not need a lot of processing power.
Ripple is both a cryptocurrency and a payment system. About Ripple’s cryptocurrency aspect, it follows an algorithm like every other cryptocurrency. Ripple’s payment system allows users to transfer money in any currency to another user on the Ripple network in seconds. Ripple transactions are much faster than other crypto coins, including bitcoin.
EOS is a robust infrastructure for decentralized applications that is blockchain-based and facilitates the development, hosting, and performance of economic-scale decentralized applications (dApps) on its platform. EOS uses the proof-of-stake idea to make instant high-level decisions among designated stakeholders.
Cardano is both a cryptocurrency and a decentralized platform that authorizes transactions without high-energy costs. Cardano seeks to safeguard the privacy of traders while being regulator friendly. The platform uses the Ouroboros Pos algorithm to authenticate transactions.
The last one is Trx or TRON and even the dogecoin; Both are regarded as the future money.
Why use cryptocurrencies?
Little to No Operation Costs: When traders use traditional ways of carrying out transactions using paper currencies, they lose some money when transferring currencies to or from bank accounts.
Cryptocurrency trading has the lowest transaction fees, only about $2. An individual may encounter only three transaction fees. The charges include the exchange fees, the network fees, and the digital wallet fees when you want to store your crypto coins in the digital wallet.
24/7 Access to Money: Unlike banks, individuals can access cryptocurrencies anytime. Given that cryptocurrencies are not subject to any central authority, an individual can access the crypto coins at any time, even in the middle of the night.
Similarly, an individual can make unlimited purchases and withdrawals. That is contrary to using bank services where the bank limits the amount of money an individual can spend within 24-hours.
Available for Anyone: Billions of people worldwide do not have access to bank accounts. However, many people have access to mobile phones and can use cryptocurrencies and blockchain technology to execute financial transactions through biometrics, thus promoting prosperity.
Additionally, signing up to use cryptocurrencies is brief and requires no paperwork.
Fast International Transactions: Unlike in banks, where transferring money from one place to another can take hours, transferring cryptocurrencies is a matter of seconds. When moving cryptocurrency from one place to another, transactions do not need to go through the same checks and balances processes that banks follow before depositing funds.
Cryptocurrency transfers are quick and instant and do not require transaction costs, whether within or outside the country. Additionally, individuals can track their transactions in the blockchain.
High Privacy Levels: An individual does not have to provide personal information with cryptocurrencies. That is contrary to banks, where individuals must provide extensive personal data.
Moreover, individuals can carry out safe transactions because of the encryptions that go into the code of cryptocurrencies. Therefore, traders can have confidence in the cryptocurrencies security guarantee as more people use the specific blockchain.
People Have Control Over Their Own Money: Cryptocurrencies are not subject to the rules and regulations that the banks and other financial institutions enforce. Suppose you remember the password or the passphrase of your digital wallet. In that case, the cryptocurrencies are entirely under the control of the individual, and no one else can have access to the crypto coins.
Cryptocurrencies allow individuals to carry out trade with other people independently, without the presence of a third party or bank interference. That is because transactions with cryptocurrencies are peer-to-peer, meaning from people to people.
Reliable Alternative to Unstable Currencies: A cryptocurrency does not bring about inflation and economic instability that individuals often experience from using traditional paper currencies. While not all individuals are subject to the incredible inflation rates, other individuals can benefit greatly from shifting to use cryptocurrencies.
Many countries worldwide allow the use of cryptocurrency, which is not affected by forex rates and interest rates. Cryptocurrency offers more solidity and assurance to people living in economically unstable countries.
Accountability of Individuals and Companies: Regrettably, several business entities and big industries out in the business world allow corrupt and illegal business tendencies. Individuals want to ensure that they carry out their trades with honesty and integrity, upholding the trading rights and following the rules of conduct. However, trusting that a company or an individual has integrity based on their information is not a reliable way to know the morals of their actual practices.
Luckily, cryptocurrency introduces the blockchain technology that will change the way individuals and companies practice a trade — blockchain technology, which is not subject to change, unlike the traditional paper currency. Cryptocurrencies and blockchain technologies make companies and individuals answerable to clients. Moreover, traders get the opportunity to know more about the companies they trade with.
Strengthen E-Commerce: Given that many people like to carry out most of their online transactions, cryptocurrencies provide a safe option for shoppers to buy as many things as they want, without fraud concerns.
Cryptocurrencies reduce the risk of fraud for online shoppers and protect business vendors and merchandisers. Cryptocurrency transactions are permanent. That is because the crypto currency’s electronic network ledger records the transactions. As a result, the transactions become irreversible and unchangeable, thus mitigating risk.
Additionally, using cryptocurrency creates endless opportunities for global commerce.
Secure Handling of Smart Contracts: Blockchain technology enables individuals to computerize practically every physical object or service in the blockchain. For example, when selling property, an individual can enter the property’s value into the blockchain and sell the property through automatic or intelligent contracts.
Consequently, banks, notaries, and financial advisors will no longer be necessary because individuals can carry out trades faster and inexpensively. Additionally, individuals can securely manage their personal information in the blockchain and use it to take loans, insurances, or even purchase travel tickets.
Governments can also use automatic or smart contracts when giving out permits, holding elections, and collecting taxes, among other government tasks. Blockchain technology will also ensure transparency in government operations.
What are the disadvantages of using cryptocurrencies?
To begin with, cryptocurrency is a concept that is difficult to understand. People who are not tech-savvy may not understand how the blockchains work or how blockchains store cryptocurrencies. In that regard, individuals are cautious of taking advantage of cryptocurrency’s benefits.
Most people do not know the benefits of using cryptocurrency. However, more and more people are acquiring information about digital currency. The response, therefore, is slow because people are not yet ready to make the switch from using banks to using cryptocurrency.
As more individuals enter into the cryptocurrency domain by acquiring their crypto every day, there is still a long way to go and a lot of work to teach people how cryptocurrencies work. Consequently, a cryptocurrency needs to circulate the money market more so that people can have exposure to it and begin to accept using it. The other significant drawback that cryptocurrencies have is the challenge of constant fluctuations in their market prices. As a result, traders find it challenging to use crypto because traders can never be entirely sure what the value of the crypto will be in the upcoming days.
Additionally, most traders do not accept digital money. That is because the concept of digital money is still new, and many traders do not trust digital money yet. What's more, many companies have not embraced the use of digital funds, even though cryptocurrency is a growing trend. That could be that companies are not willing to take a risk with the constantly changing prices. In addition, companies may not be aware of how cryptocurrency can generate profits.
Lastly, most people may not know where to get cryptocurrencies, store them, and use the cryptos. Although people can search for information on cryptos online, the idea is that no person, young or old, should have any challenges when it comes to dealing with cryptocurrencies. Instead, the trade should become an organic or natural part of people's lives, the same way that paper currency is.
In conclusion, the world’s rate of becoming technologically interconnected calls for a complete transformation in buying and selling products and services. Cryptocurrencies are one of the groundbreaking innovations in the context of technological interconnectedness that will revolutionize global forex trade.
Consequently, more traders will accept cryptos, and more people will switch to cryptocurrency trading. In that way, cryptocurrencies have a huge potential to become the most widely used medium of exchange.