Cryptocurrency
A cryptocurrency is a digital asset widely used as a medium of exchange between buyers and sellers for purchasing and selling goods and services. The main differences from money as we typically understand it are:
- Cryptocurrency does not exist in physical form (like paper money)
- It is not issued or controlled by a central authority. Instead, it is a peer-to-peer, consensus-based, self-regulated system.
- Its value is not driven by any underlying asset (like gold) but rather by market supply and demand.
- Ownership and transactions that transfer ownership (as payments) are recorded in the decentralized system.
- The system is governed by rules, processes, and protocols defined by the community of users, and participation is subject to adherence to them.
- It has a better check on what is known as "double spending" since all transactions are validated by peer consensus. If two different instructions for changing the ownership of the same cryptocurrency are simultaneously entered, the system performs only one of them.
While extremely popular with many people for certain types of transactions, cryptocurrencies have not yet been accepted into the mainstream by the banking and financial communities. Governments and regulators, in most countries, still believe that its systems, processes, and inherent risks need to be understood better by all participants and stakeholders.
It is a paradoxical situation since if it is meant to be a decentralized and self-regulated system, there should not be any need for government or regulatory approval, but no country will accept it into the mainstream without some central governance.
One other feature that can be a challenge is that cryptocurrencies are inherently anonymous, working with only accounts (or "addresses") and no personal identification details. Thus, although all transactions and balances are publicly available in the blockchain, cryptocurrency owners are not identifiable, which is currently not an acceptable situation for most regulators.
How it works
