Cryptocurrencies are a hot topic in the media, some believe it to be the source of quick money, some believe it to be a stable revenue source. And the main question is why has this relevantly new concept taken over the minds of millions of people? We’re trying to establish the clear understanding of cryptocurrencies and unravel its main pros & cons in this article.
Cryptocurrency or often shortened as crypto, like other digital assets, is formed by a technology known as blockchain. Blockchain is a database that is spread over various interconnected computer networks. As a digital database, this system stores every data in digital form.
The basic difference between a blockchain and a database system in general lies in the structure of the data it stores. The system collects information together in a group of blocks that have a certain storage capacity. If the block is filled with information, then the block will be closed and connected to other blocks, which will form a chain of information collection. A new block will be formed when there is new information added. The blockchain system aims to save and distribute digital information or data where third parties cannot make changes to the data arbitrarily. Simply put, blockchain is just like a record containing data or information that does not allow anyone to change, delete or destroy it. This makes this technology known as Distributed Ledger Technology (DLT).
Cryptocurrency works based on this technological system. Therefore, blockchain has an important role in a crypto system to keep every transaction in a secure and decentralized manner.
Blockchain consists of two components. The first component is a block. Block contains all the information in a computer. These blocks are linked by another blockchain component, the “chain”. So, it can be concluded that blockchain is a series of blocks that contain digital information.
Within each block, there is a component known as a "hash". Hash itself is a set of characters that organize the information contained in the block. For example, suppose there is a city block in the world named “City”. The block contains three pieces of information, namely “London”, “New York”, and “Doha”. So, the hash component is the character that is in the three pieces of information in the block, for example LDNYDH.
Each series of blocks will contain the hash of the previous block. If there is new information in the next block, then the previous hash will be changed with additional characters, however, it does not eliminate the old hash. For example, if the previous hash was “LDNYDH” and there is new information, namely “Puerto Rico”, then the hash will change to “LDNYDHPR”. So the previous hash remains and doesn't change.
The blockchain system duplicates all data and programs throughout the network in the system, so that all computers connected to the blockchain system will record transactions simultaneously. In the future there will be more and more use of blockchain in various sectors, although currently many are still struggling with cryptocurrencies. Blockchain is one of the key technologies and is predicted to be the bright star in the future, and it will be widely used as one of the e-currency systems.
In addition to hashing techniques, another technology that also plays an important role is cryptography, which is a mathematical method for encrypting and decrypting data. This technique generally allows data or information to be more secure from eavesdropping from third parties or other unauthorized parties. Data exchange can only be done by parties who have access.
A crypto wallet is an electronic wallet that is used by crypto owners to record and manage their crypto assets. Its basic working principle and usage are the same as a conventional bank account, such as performing various financial activities and being able to get information on the amount of money we have.
There is some differentiation in categorizing crypto wallets, the first is based on the requirement to connect to the internet and the second is based on the management model. Based on the need for connectivity to the internet, crypto wallets can be categorized into two kind, hot wallets and cold wallets. It is called by hot wallet because it is always required to connect to the internet, while cold wallets generally do not always need to connect to the internet. Based on the management model, it can be divided into hosted/exchange wallet and noncustodial wallet.
An exchange wallet or hosted wallet is a wallet created by the exchange manager. In contrast, a noncustodial wallet is an independent wallet that does not depend on the exchanger entity that the customer use. If you buy crypto and use the exchange's account to transact, then you are already using an exchange wallet. One of the advantages is relatively easy to recover if the user forgets the password.
The drawback of this type of wallet is it has some limitations in making certain types of crypto transactions, such as NFT. In contrast to exchange wallets, in self-custodial or noncustodial wallets, the user holds his own private key. One example of a non-custody wallet is a hardware wallet which can be a USB stick-like device. Some examples of noncustodial wallets are Wasabi, Ledger Nano X, Trezor One, Zengo, and others.
A software-based wallet is a program or a User Interface (can be in the form of web-based or mobile apps) where a user can store their coins, while at the same time it also provides a private key and public key as part of the security function. The private key can be analogous to the password needed when a user wants to access the wallet, while the public key is similar to an account number at a bank. This public key will become an address that will be used for asset transactions such as buying, transfers, balance queries, and so on.
Crypto as currency or asset in digital form has several advantages, such as:
Cryptocurrency opens the way for new transactions in addition to using conventional transaction methods through banking. For example, if we want to transact with overseas parties through a bank, we have to wait for the bank's working days and hours to be able to make a transaction. If we use cryptocurrency, we can make transactions anywhere and anytime. Crypto asset trading activities can be carried out for 24 hours or without a certain time limit, so the scope is wider. When compared to conventional exchanges, a user needs to follow a certain time in carrying out buying and selling activities, so there is a certain time limit.
With so many cases of identity theft and bank hacking, one alternative solution is to use cryptocurrencies because we can transact without showing our identity. It is also safer because crypto uses a blockchain and an encrypted system with cryptographic methods. All transactions will be recorded on the entire network that is connected in the blockchain system.
There have been many cases of counterfeiting banknotes or coins, and one alternative is to use cryptocurrencies, as this currency cannot be counterfeited and is designed to be difficult for irresponsible parties to hack.
In addition to the advantages, of course there are also disadvantages of crypto such as:
Because this cryptocurrency is still a new entity, not all countries or institutions have regulations that regulate the existence of cryptocurrencies. In most countries today, cryptocurrency is not recognized as a currency, but only as an investment commodity.
Cryptocurrencies can suddenly experience a very high increase in value, and can also suddenly experience a decrease in value. It can be said that cryptocurrencies are less stable and difficult to predict. Some consider it as a bubble because its fluctuating value is only based on the supply and demand mechanism.
The following are some examples of available cryptocurrencies and the most popular in the crypto market:
Some people when they hear the word crypto asset will most likely refer to Bitcoin. This is very reasonable because Bitcoin is the oldest type of crypto coin released in 2009 as well as the most popular and high value, even though the level of volatility is high. At the beginning of its creation by Satoshi Nakamoto, Bitcoin was intended as a digital payment system, but some experts argue that Bitcoin is still too volatile to be a means of payment. Although some platforms have accommodated Bitcoin as a means of payment. With the remaining number of Bitcoin remaining on the blockchain network running low, the value of Bitcoin will continue to have the potential to climb up. The market capitalization value of bitcoin using blockchain technology reaches US$1.3 billion.
The first crypto alternative to Bitcoin on the list is Ethereum (ETH). Ethereum is a type of crypto asset derived from a decentralized software platform that allows smart-contracts and decentralized applications to run without downtime, fraud, control, or interference from third parties. The market capitalization value of Ethereum is US$574 million. This makes Ethereum a crypto asset with the second-largest market capitalization value after Bitcoin because Ethereum offers more diverse features than Bitcoin so that it attracts a lot of investors. The market value of Ethereum itself has increased significantly since its creation in 2013.
The Binance Coin (BNB) is a utility cryptocurrency that operates as a payment method for fees associated with trading on the Binance Exchange. It is the third largest cryptocurrency. Those who use tokens as means of payment for exchanges can trade at a discount. The Binance Coin blockchain is also the platform on which the decentralized exchange Binance operates.
Binance Exchange was founded by Changpeng Zhao and is one of the most widely used exchanges in the world by trading volume. Binance Coin was originally an ERC-20 token operating on the Ethereum blockchain. Finally, has its own main net launch. This network uses the PoS consensus model. As of September 18, 2022, Binance Coin has a market capitalization of USD44.1 billion, with one BNB worth around USD273.34
Cryptocurrencies are derived from a technology called blockchain. The form of investment is in the form of crypto assets such as Bitcoin, Ethereum and other crypto assets utilizing blockchain technology. Blockchain and cryptography have an important role in the crypto system to record every transaction in a secure and decentralized manner. Blockchain is a database that is spread over various interconnected computer networks.
Satoshi Nakamoto is credited as the developer of the world's first and largest cryptocurrency – Bitcoin. Nakamoto was the one who mined the first Bitcoin blockchain and the one who published the white paper for the digital currency. Besides Bitcoin, there is also ETH, BNC, etc.
Cryptocurrencies are not yet fully accepted as legal tender in almost all countries in the world. Only El Salvador and the Central African Republic have accepted cryptocurrencies as legal digital currencies. Apart from being a medium of exchange, cryptocurrencies are more widely used as investment assets with a very large market cap, but they are volatile because they depend on supply and demand.