In the new world, digital payments are part of our everyday lives. We pay with debit cards, place online orders and have tie ups in the form of ‘credit’ with retail stores and other service providers. An interesting addition to our digital ecosystem is the concept of cryptocurrency.
Simply put, cryptocurrency is a virtual, decentralised currency, supported by a global community, that uses cryptography for security and holds value.
Within this definition, there are five key contributors that point to cryptocurrency being the future of digital payments:
1. It is completely virtual
Imagine a transfer, local or international, free of additional fees or processing time. This is cryptocurrency. A completely virtual platform. Currently, there are three digital currencies out there, of which the most famous is Bitcoin. Users of Bitcoin receive an e-wallet, buy bitcoins for a certain monetary value and transfer these coins to any person around the world in an instant. A currency not dependent on any fluctuations in the market, Bitcoin is immune to inflation and exchange rates.
2. It is decentralised
As a decentralised currency, individual users own it. No bank or organisation has control over it. For example, Paypal has the ability to shut down any account, regardless of your input. With Bitcoin, individuals govern their own accounts – making it impossible for anyone else to freeze, suspend or subject it to fraud.
3. Supported by a global community
Let’s use Bitcoin to explain the concept of blockchain. Every time bitcoins are transferred from one person to another, an entry is made in a virtual, public ledger. This ledger is maintained by individuals all around the world called miners, who receive bitcoins in exchange for keeping all ledgers up to date and correct. Through a series of algorithms, every ledger, also referred to as a block, is correctly added to a chain – creating a blockchain of transactions.
Not having one organisation managing all transactions, activities are monitored by the people, for the people. This system showcases how the best environment is built where everyone experiences a win-win situation. Miners keep ledgers up to date in exchange for bitcoins while the blockchain is maintained by a global community who all share the same interest – to grow the digital currency network.
4. It uses cryptography
As with any digital payment, theft or fraud is a concern. One may ask that without a body to govern it, how does a digital currency prevent fraudulent activity? The answer is cryptography, which is defined as the process of securing the use of digital currencies.
For example, with Bitcoin, every e-wallet has two virtual keys, which serve as an identity document. Think of a password or signature when using a card. One key is made public to the global community while the other is held private. In order for Bitcoins to be transferred, both keys need to match each other – preventing any counterfeiting.
5. It holds value
Bitcoin is accepted all over the world. Just as easily as bitcoins can be bought, it can be sold. Numerous sites exist that enable users to buy items such as food, clothing, cars and holiday trips with their bitcoins. Important to note is that bitcoins have a finite value and over half have already been mined. The number of new bitcoins created each year is automatically halved over time. It is expected that 21 million bitcoins would have already been mined by 2040.
Digital currency is the future for a number of reasons, among which are freedom of transfer, security and time. What is truly interesting is its ability to create a community that frowns upon monopolisation and works towards the collective goal of creating a sustainable digital network.
Fascinated and want to know more?
Check out our seminar on the 23rd of November at the Grand Hyatt in Dubai, where we’ll deep dive into the topic of cryptocurrency and all its components. Get your free tickets here: https://goo.gl/CuKfLQ