If you’ve been following financial news in the past few weeks, you’ll probably notice a trend, which is essentially BITCOIN BITCOIN BITCOIN BITCOIN. The reason for this is that bitcoin has recently begun trading on the Chicago Mercantile Board (CME), making it even more legitimate than before. Most people, however, still have little to no idea of what bitcoin is all about. This week, we’ll be chatting about bitcoin, plus cryptocurrencies in general.
What is cryptocurrency? There are many hundreds of cryptocurrencies. As a quick google search will tell you, there are literally hundreds of different types of cryptocurrencies, just as there are hundreds of different types of regular currencies. What makes cryptocurrency so special? Just ask the creator of the first crytocurrency, Satoshi Nakamoto: “Announcing the first release of Bitcoin, a new electronic cash system that uses a peer-to-peer network to prevent double-spending. It’s completely decentralized with no server or central authority.”
What makes cryptocurrency different? As previously mentioned, cryptocurrency has no centralized authority. Now, a centralized authority for currency, as you may know, is the government entity which manages their country’s money, also known as a central bank. In Canada, or central bank is called the Bank of Canada. In the United States, they call it the federal reserve.
So why is this so special? Well, the idea is that without a centralized authority, there is no possibility of corruption, hacking or other form of theft. Any transaction, whether you receive or send money, is approved by a huge network (millions upon millions of computers) of your peers, that is, other people who are also using bitcoins or any other type of crypto, who are specifically called “miners”. Bitcoin mining gets a bit more complicated, so we’ll explore more of that in a future article. For now, the important thing is that we understand the difference between cryptocurrency and conventional currency.
“So how can this benefit me?” is a question you might ask. Well, the potential benefits of a cryptocurrency are many. However, similarly, it might also be a detriment, depending on how you look at it. Here is a rough list of the specialized characteristics of cryptocurrency:
Speed. Unlike wire transfers or interact, the transactions for bitcoin are nearly INSTANT. As soon as someone sends you some coins, they’re available to you and you can send them out. Anywhere, across the entire globe. Whether you’re sending it to your neighbor next door or to someone in Angola. Boom, it’s there.
Security. Although theoretically, it’s possible to hack someone’s bitcoin account, in reality it’s almost impossible. Remember how we mentioned the giant network with millions of computers? A hacker would need to hack every single one of those computers to create a fake transaction which will be mistakenly recognized as legit. There is no computer in the entire world that’s powerful enough to do this.
Irreversible. Once a transaction has been approved. That’s it. It doesn’t matter even if you sent your money to a scammer. You’re not getting it back. Similarly, if someone sends money to you, there is no possible way they can take it back.
So there you go. A very, very brief primer on cryptocurrency. We hope you’ve gained some good knowledge from this, and who knows, you might be the next crypto millionaire! See you in the new year!
Merry Christmas and Happy New Year from all of us at Firenze Financial Services Inc.