Bitcoin, Cryptocurrency and Digital Currency

Bitcoin is a new holy grail and anyone who had it a few years ago would have made a fortune. Bitcoin surfaced on the internet in 2011 when its value was just $0.93. In 2013, it reached a value of $900 and before April 2022, it was valued at $47,000. Bitcoin was born in 2008 when a pseudonym Satoshi Nakamoto published an article about this new currency and worked on it with a team. Mysteriously, he never met members of the team and mostly communicated via email. Shortly after the launch of bitcoin and its popularity among tech communities, founder Satoshi Nakamoto suddenly disappeared and no one knows who he was or where he went with the 2 million bitcoins he owns.

Bitcoin is a cryptocurrency based on blockchain technology and was created to act as a decentralized currency over which banks and the government had no control and users could hide their identities while trading on the internet. Bitcoin is not the only cryptocurrency that exists today, but there are many such as Ethereum, Doge-Coin, Solana, etc. A person can exchange bitcoin through an e-wallet and can send or receive fractions of bitcoin to their e-wallet.

Blockchain technology is a shared and immutable ledger that facilitates the process of recording transactions in the corporate network. Recorded transactions are immutable, making them immutable in the future. Every transaction on the blockchain is stored in a block and as such stays there on the network forever, making the system reliable and secure. Blockchain also finds its application in creating smart contracts that are expected to be game changers in real estate ownership, supply chain management, storage of immutable records such as medical records, school records, property records, etc.

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Until now, bitcoin has not acted as a currency, the governments of countries are concerned about the decentralized concept and therefore the lack of regulation is vulnerable to serve as a source of funding for terrorist attacks, cybercrime, drug trafficking, human trafficking and many more. Bitcoin also lacks the features of a normal currency that should act as a medium of exchange, store of value and unit of account. Rather than being used as a currency, bitcoin is now being used as an asset class to hedge against rising inflation. Billions of dollars have been lost after the recent cryptocurrency crash in April of this year, indicating that this currency is highly volatile to be used as a regular currency for any daily transaction. Other reasons that keep bitcoin from going mainstream are the lack of awareness among the masses, the large computing power it needs for mining, the power consumption for creating nodes to carry out the transactions. Its volatility, its deregulation and its decentralization. In the future, cryptocurrencies could be used as normal currencies, but the question is still debatable.

Cryptocurrencies are often confused with blockchain technology rather than blockchain being a large area on which cryptocurrencies are built. Blockchain is also used to create NFTs (non-fungible tokens), smart contracts used in De-Fi (decentralized finance), immutable records, and much more. Blockchain is the backbone of Web 3.0, the future of the Internet after Web 2.0. Blockchain is also being used in the tokenization of physical and virtual assets, which could give us the opportunity in the future to own a fraction of NFTs, real estate or anything of significant value.

Digital currency, on the other hand, is a centralized currency that replaces paper money printed by governments. Digital currency has a central controlling authority to initiate its digital currency and hence is controlled by an organization while cryptocurrencies are decentralized currencies where the control is not vested in any person or organization.

Investors are adding bitcoin and other cryptocurrencies to their wallets due to inflation causing fake currencies to lose their value. Fiat currency is the money printed by the government that is not backed by gold or silver and when such amounts of currency are injected into the economy it leads to inflation and sometimes hyperinflation. Experts believe that bitcoin, like gold and silver, can act as an inflation hedge.

Digital currencies, on the other hand, are digital variants of fiat currencies. Digital currencies are regulated and have a central authority like the government or central banks and are not based on cryptographic hashes like cryptocurrencies. RBI recently announced the launch of its own digital currency. In addition, the Indian government recently taxed cryptocurrency assets at 30%. Digital currencies are considered stable compared to cryptocurrencies.

(The author is a technical writer and crypto Web 3.0 developer. aamirmir001@gmail.com

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