What problem does cryptocurrency solve?
You have probably heard so far about Satoshi Nakamoto and his revolutionary invention of bitcoin, which turned out to be a threat to the traditional financial system and central banks. The cryptocurrency network represents the solution to the issues in the modern world system of finances. The sector is conceived to become a peer-to-peer cross-border payment system. In this article, we answer the question of what problem does cryptocurrency solve. And we also cover the following points:
- benefits of cryptocurrency
- what is blockchain used for
- crypto mining process
- what problems does mining solve
Digital currencies – An inevitable advent
The operation of cryptocurrencies is based on a particular tool that is revolutionizing computing to a large extent: blockchain technology. The principle of the blockchain is simple to understand since it works like a program that records every action and every movement made.
Cryptocurrencies such as Bitcoin can be viewed as a collection of smart contracts that enforce ownership.
These contracts could revolutionize contractual relations insofar as the automatic nature of the latter could lead to the cancellation of the contract or the suspension of payment in the event of a breach of the terms of the contract or total or partial non-performance of an obligation. Automatic reimbursement is also part of the possibilities offered by smart contracts.
The purpose of these contracts is to facilitate transactions between actors who do not know each other, to guarantee that each contracting party will keep its commitments and to avoid any falsification. In other words, they would reduce payment delays and the risk of errors, but also avoid possible friction related to the terms of the contract and mutual obligations.
Cryptographic techniques are built to allow the sole owner of a digital token to spend or transfer it. The blockchain allows specific systems to operate in total autonomy and automatically exercise effective operation monitoring.
The blockchain is invading many systems far beyond cryptocurrencies, such as the food industry, logistics and transport, etc. However, its mainly known purpose is to go past traditional payment systems, enabling people to trade digital currency on cryptocurrency exchange platforms and circumvent classic wire transfers.
What problem does cryptocurrency solve – what is cryptocurrency actually useful for
Crypto-assets offer a myriad of new possibilities:
- Security of transactions
- they enable easy and fast payments
- pave the way for innovative financial services
- act as safe-haven assets
- enable the users’ anonymity on the Internet.
- enable avoiding inflation
All of this is enabled by the ecosystem of crypto assets.
Security of transactions
The blockchain brings a lot of security. That’s why cryptocurrencies are more and more appreciated when buying on the Internet. Each time you pay, the bitcoins (or others) register this action with your receiving address. It is therefore easy to identify purchases and protect against theft. More and more online shops accept them.
Even online casinos are getting into it, well aware that it meets a real demand. Just look at the ranking of online casinos with the best reputation. You will see that more and more of them offer the opportunity to bet bitcoins rather than more traditional currencies. Thanks to this, they attract many new customers.
From prestigious luxury cars to everyday life insurance products: you can use bitcoin to buy all sorts of things. Additionally, with bitcoin debit cards, which can be topped up with cryptocurrencies as well as everyday transactions in fiat currency, you can use BTC anywhere card payment is accepted.
Cryptos as safe-haven assets
Although it is very different from traditional investments, bitcoin is also considered by a large number of people to be a safe haven. However, its extremely volatile price reveals that it is a very risky asset, which has not deterred speculators who have flocked to the tokens, with some calling it “digital gold,” given the total number of bitcoins is capped.
Inflation has caused many currencies to fall in price over time. At the time of its launch, almost every cryptocurrency is launched with a fixed amount. For instance, there are 21 million Bitcoins launched in the world. So, due to the increased demand, its price will increase to keep up with the market, and in the long run, you are able to avoid inflation.
You can buy, sell and trade cryptos.
Due to their volatile and unpredictable price in the open market, bitcoin and other cryptocurrencies have become popular with day-traders and investors alike. However, keep in mind that any investment in cryptocurrencies involves significant risks.
The speculative aspect
Today, crypto assets are still unknown by much of the world, although they are gaining momentum. It’s not yet possible to carry out all types of transactions with this kind of currency. It has more of a speculative aspect (with a higher share of risk than in financial funds). It makes it possible to have large gains but also losses.
Cryptocurrencies are virtual currencies destined to compete with the current banking system. Be careful, however, because not all of them are equipped with the “Blockchain” network.
In addition, some countries are reluctant (at least for the moment) to use this type of currency like China. Nevertheless, more and more investors have them in their portfolios (Bitcoin, Ethereum). The main thing is to make this investment fully aware of the risk and its real value.
At this moment, BTC’s purchasing power is extremely volatile but is expected to stabilize in the long run.
What problem does cryptocurrency solve – How does bitcoin solve the double-spending problem?
Bitcoin uses a decentralized network of powerful computers to verify transactions and continuously validate the blockchain. The members of this network do not need to trust each other (or even know each other), and each of them has an identical copy of the shared public ledger.
Having many copies distributed – as opposed to a single “master” copy – eliminates the need for a trusted centralized authority and protects the blockchain from double-spending and hacking.
Upon the transaction verification by the network and added to the blockchain, it cannot be changed. A hacker attempting to tamper with or change the blockchain would only be modifying their own copy. This would not match the versions stored on the other computers on the network, so there would be no majority consensus proving its validity.
In the case of bitcoin, at least 51% of the computers on the network would have to validate the erroneous copy of the blockchain for it to be considered valid. Also, given the cost and computational power required to influence so many devices in a decentralized network, it is extremely difficult to introduce an error into the blockchain.
What problem does cryptocurrency solve – What is crypto mining?
Mining is the basis of the blockchain and one of the terms that come up most often when talking about industry news. But what exactly is mining?
The term relates to a crucial step and fundamental principle of cryptocurrencies. It is the act that makes it possible to ensure the integrity of the blockchain, create new units of cryptocurrencies, and make the whole crypto ecosystem work.
Mining is the process of validating transactions made on a blockchain. These transactions represent the validation by group or by block. The system puts miners in competition with each other to know who will have the right to validate them. The validation of these operations is a key step of the process.
What can blockchain be used for
Blockchain technology finds its implementation in many sectors. We will mention just a couple of them.
Money transfers and payments
Blockchain was quickly used as a currency transfer method, with bitcoin leading the way. Thanks to this technology, which allows transactions to be carried out in a matter of seconds, you can exchange money at an alarming speed with minimal costs.
Blockchain is beginning to be used in the food industry by easily providing information to consumers about the origin of the products they consume. This strong consumer demand also allows professionals to better trace their products and better manage health risks.
Help validate people’s identities.
Several companies are currently launching Blockchain-based identification programs to help create and validate people’s identities. Simply using an internet-connected smartphone, a person is photographed, and facial, and voice expressions are recorded in a video. The data is stored in a Blockchain, and anyone can access it to verify the person’s identity. Without email, phone, passport, or even a birth certificate, a Blockchain could be the only way to prove their identity. It would improve their lives and give them a lot more opportunities.
Blockchain technology can be used to provide a decentralized education system in which there is a real-time exchange of information. In this way, students can be trained individually by online tutors who will be rewarded with digital tokens.
What problem does cryptocurrency solve – Bottom line
Don’t worry if you are still a bit wondering, “what problem does cryptocurrency solve?” It often takes some time to become familiar with the financial concepts behind cryptocurrencies, and this article is primarily aiming to provide you with an overview.
The most important thing to remember is that cryptocurrencies have advantages and disadvantages. Our advice is to learn as much as possible to help you understand this growing world of cryptos. Only in that way can you make enlightened decisions about buying and selling crypto assets.
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