The Emergence of Digital Money

“Bitcoin is the beginning of something great: a currency without a government, something necessary and imperative.”

- Nassim Taleb

Currencies historically have been issued by governments and controlled by treasuries and central banks which regulate their flow and supply based on a variety of different tools. However, one of the most interesting developments of the 21st century is the introduction of digital currencies which have no central authority. These new digital assets, referred to as cryptocurrencies, represent a brand-new form of value transfers between parties thanks to their entirely digital make-up.

A New Star is Born

By now, you’ve probably heard about bitcoin, the original cryptocurrency that was first launched in 2009. Although the enigmatic Satoshi Nakamoto, the person or persons behind the launch of their new idea remains a mystery to this day, the cryptocurrency was designed specifically to be free of a centralized oversight body like a government, central bank or treasury.

This decentralized nature meant that it would be difficult to manipulate, finite—which meant more could not be issued beyond the original limit—and quickly transferrable across national borders without the use of banks or other financial institutions.

This new pioneering currency was designed to facilitate exchange between two parties without any middlemen or gatekeepers that commonly charge a fee for the role they play in marketplaces. The technology that supports cryptocurrency combines advanced cryptography (codes that are very difficult to solve or break) with a system that is designed to be “trustless”, helping deliver a more secure digital asset. Furthermore, supply is restricted to a finite amount, meaning that no more cryptocurrency can be issued or “printed”, preventing the inflation that commonly accompanies fiat currency when more bills and notes are put into circulation.

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An Emphasis on Security

The answer to this question is slightly more complex because security is the product of several different cryptocurrency features. The addition of advanced cryptography (or difficult-to-break codes) to cryptocurrency is the first layer of security that helps ensure a more protected network. Cryptography keeps cryptocurrency users safe from hackers.

Another security feature of cryptocurrency is that many of the best cryptocurrencies are completely decentralized, meaning no one single point of failure. Imagine a company stores all its information on a single computer. If those servers are hacked or destroyed, all the data will be destroyed. Because of the decentralized nature of cryptocurrency, the network is hosted in thousands if not millions of places (called nodes) simultaneously. That means that even if a single access point is attacked, the network can continue to function flawlessly.

Furthermore, to approve all transactions on the network, miners add another layer of security. Miners certify all the network’s transactions by completing complicated math problems and coming to a consensus, ensuring that all the ledgers match.

Replacing the Old with the New

One of cryptocurrency’s earliest objectives was to replace slow old systems that currently are responsible for moving money across the globe. The most famous of these systems is SWIFT, which is short for “Society for Worldwide Interbank Financial Telecommunication.” SWIFT has been around since 1973, and until cryptocurrency, there was no plan to replace this outdated system.

Instead of moving money in minutes which would reflect the great advances in technology, it sometimes takes over a week to transfer funds via the SWIFT system. By comparison, Bitcoin takes around 10 minutes to process a transaction and transfer value between two parties.

For traders, this growing digital asset market can present numerous opportunities thanks to the fact that it never actually closes. Cryptocurrencies are traded around the clock, 7 days a week. However, the newness of the asset class means that it is susceptible to higher volatility, increasing the potential risks and rewards simultaneously.

For those investors interested in trading this exciting asset class, FXTM Standard Accounts for Exinity Limited clients feature 4 popular cryptocurrencies traded against the US dollar including Bitcoin, Ethereum, Litecoin, and Ripple. Furthermore, because they are traded as CFDs, traders can seamlessly establish either buy or sell positions.

Why Pick Cryptocurrency Over Fiat?

While still a new technology, cryptocurrency has already demonstrated great potential for transforming the way we approach money. Though not a perfect system, cryptocurrency is sparking a financial revolution that will likely touch many aspects of our daily lives.

The mechanics may seem complicated, but just like you may not know how exactly a computer works or how to put one together, you still use it to browse the internet, read and reply to emails, and handle other daily tasks. Not knowing exactly how it works doesn’t prevent you from using a computer and trusting it will work. Cryptocurrency is no different.

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