Economics Book Review – The Rise of Money, A Financial History of the World by Niall Ferguson

Cryptocurrency is a digital asset that is primarily used as a transaction medium to secure financial transactions, control the creation of additional assets, and verify any asset transfers with the help of strong cryptographic technology. It is also known as a form of digital currency or virtual currency. Unlike central banking systems, it is a decentralized financial transaction and control system that works through a blockchain used primarily for financial transactions.

The first decentralized virtual currency that was developed in 2009 is Bitcoin, known as a virtual currency unit and it works independently without the assistance of any central bank or administrator. Since then, around 4,000 altcoins of various bitcoin variants have been developed. Bitcoin is considered a peer-to-peer electronic cash system in which users transact directly without intermediaries.

Blockchain is a data file consisting of numerous blocks that keeps records of all previous bitcoin transactions and also the creation of new ones. The normal average time between each block is about 10 minutes. The most frequent use of bitcoin is supported by external software called a Bitcoin wallet. By using this software, one can easily store, receive and manage the transaction of bitcoin units. In order to transact with bitcoin, it is necessary to have an account with any of the bitcoin exchanges around the world and transfer fiat currency to that account. Therefore, the account holder can make future transactions using these funds. Apart from bitcoin, some of the other sources of cryptocurrencies are the petro, which is mainly used for oil and mineral reserves.

There are some pros and cons associated with the use of digital currency. The main benefits of using a virtual currency are as follows:-

• Provides a quick transparency layer:-

Bitcoin generally operates with the help of a ledger called a Blockchain that records and monitors each and every transaction. Once a transaction is made and posted to this ledger, it is considered static. These transactions can be verified at any time in the future and thus, in addition to this, it also ensures security and privacy regarding all transactions made through a particular account.

• Fast processing and portable use:-

Billions of dollars worth of bitcoin can be easily transferred from one place to another without detection with the help of a single memory stick. When making any type of transaction, the participation of third parties can be eliminated through the use of this bitcoin technology. This will result in a quick and easy transaction without third party approval,

• Low transaction costs involved:-

The transaction costs involved in exchanging these digital currencies are much lower, making them more affordable than real currency for people around the world. Therefore, the cost of any type of transaction carried out is much lower, which turns out to be an advantageous feature for the population when carrying out any transaction.

• Combat and eradicate poverty:-

Often the banking systems and financial institutions do not provide help or assistance, especially to the backward classes in the rural areas. Bitcoin serves as an alternative in cases where you extend your robust financial services to anyone with internet access. It often serves as a support for the poor and oppressed classes who are in most cases not offered any viable alternative.

As newer or newer technology comes along, there are also some negative factors associated with its use, which are as follows:

• Lack of knowledge and distrustful approach of the population:-

Due to the lack of knowledge about the digital currency, people are more likely to be wary of its widespread use. Therefore, there are very few trading systems that accept these sources of cryptocurrencies, which limits trading systems that prefer to use the virtual currency in their daily transactions.

• Non-traceable transactions:-

Since transactions made by bitcoin cannot be traced, it provides a space for criminal transactions. In such cases, drug traffickers and scrupulous people are the ones who make use of said virtual currency so that their illegal activities are not easily detected.

• Volatile nature and uncertainty:-

Cryptocurrency is sometimes volatile and keeps changing frequently on a large scale. Sometimes people make a lot of money when the market rates of these virtual currencies skyrocket, and sometimes they also face huge losses when the price crashes.

Cryptocurrency is an innovative yet amateur concept that can potentially upend the entire financial market. It is true that this digital currency has captured the attention of the world in a short time. There are always pros and cons to every new technology that comes on the market. To make the best use of it, one needs to look at both sides before making any decision.