Cryptocurrency Essay

  • Length: 2 pages
  • Sources: 2
  • Subject: Finance
  • Type: Essay
  • Paper: #42403986

Excerpt from Essay :

Cryptocurrency



A cryptocurrency is a medium of exchange (currency) that is digital in form, non-governmental, and relies on cryptography for its security (Investopedia, 2018). It is the latter component of the definition that gives cryptocurrency its name. The vast majority of currency in the world comes in the form of exchangeable units that are issued and have their value controlled by governments. Nations will either allow their currency to float freely on the market, where the value derives in part from supply and demand, and is backed by the ability of that state to raise revenues. These are considered to be the strongest currencies. Other currencies have values that are fixed by the state – as a medium of exchange those official values may or may not reflect the ability of the state to raise funds, but the value is enforceable by law regardless.



A cryptocurrency is different in that its value is derived solely by its supply and demand. The demand for cryptocurrency is driven by consumer trust in the currency as a medium of exchange, which is common to all currencies, and by the demand for a currency that is not subject to government control. The lack of oversight over the exchange of cryptocurrencies makes them especially popular for illicit activity (Investopedia, 2018), and from that they can derive demand.



Bitcoin was introduced in 2009 and has become the most well-known of the cryptocurrencies. A major feature of Bitcoin that has helped it rise to prominence is the idea of the blockchain. Bitcoin works when the Bitcoin client software generates" unique, mathematically linked keys", one private and one public, and these keys are used to bring two parties together and verify that the money being exchanged is real (Simonite, 2011). The client will then verify the transaction by sending it to all other users who are online. The transaction will be logged by Bitcoin miners who race to solve a cryptographic puzzle (Simonite, 2011). This process in theory guarantees security and trust in the transaction.



The mining is the means by which Bitcoins are created, answering the supply part of the equation. The necessity for transactions to be verified and entered into the public log means that the system only works when there is incentive to perform these tasks, and the creation of Bitcoin for the…

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