In this article we will talk about how cryptocurrencies work, definition, types and use in the financial field.
How cryptocurrencies work in financial digital transformation
How do cryptocurrencies work?
LThe transactions that are carried out are sent between peers from the wallets of the people who are immersed in the operation, precisely at the moment in which the public codes coincide. These are articulated with each of the private passwords or cryptographic keys created by the users and determine that each transaction reaches the digital wallet of the other person.
Subsequently, the transactions that were made are recorded in the public ledger, or "Blockchain" which in Spanish means (chain of blocks). Any user or any member, who is part of the same cryptocurrency, will be able to access the ledger without any inconvenience, as long as they have fully downloaded a wallet instead of a virtual wallet, for example Coinbase. Once they have accessed, they will see the amounts of each of the operations, but not the account number (since it is encrypted).
The reason why it is considered a "blockchain" is because, every time a user receives or sends a cryptocurrency, either through public or private passwords, the transaction remains in stan by waiting to be added to the ledger. .
Then, as several transactions take place at the same time, they must be incorporated progressively, one after the other, this being understood as the sequential application in a chain of transaction blocks.
What is cryptocurrency?
The cryptocurrency, virtual wallet or cryptocurrency is a digital currency that is handled in cryptography to facilitate a secure payment system and financial transactions.
Cryptocurrencies can be exchanged like any traditional exchange method; However, this is outside the regulations dictated by the government and financial institutions; Among the cryptocurrencies that exist in the market, the best known is Bitcoin.
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Features of the cryptocurrency
- Decentralization. It does not require to be supervised by any institution.
- There is no possibility of forgery or duplication.
- There are no middlemen.
- The transactions are irreversible.
- The exchange for other currencies.
- privacy of use
Monetary properties of cryptocurrencies
Next, let's see what the monetary properties of cryptocurrencies are.
controlled supply
Cryptocurrencies have a control scheme, which differs from conventional currencies. To achieve its application, cryptocurrencies are executed in a scheme that is determined in codes, which allows one of the parties (buyer), the delivery of the same, and after time they can be valued in real time. As a reference we have the case of Bitcoin.
Without debt
The existence of cryptocurrencies is real, and represents itself, and is not created out of debt, as is the case with fiat money. Important to highlight:
- That the value of cryptocurrency is not linked to the state of an economy.
- The interest rate and monetary increase have no direct effect on its price.
- Its value only depends on the commitment of users to maintain its price.
- They represent a part of the variety of applications that use block technology.
Advantages
Its main advantages:
- Low transaction costs.
- Transparency
- The accumulation in the tiny space such as that of a USB.
Disadvantages
- Price volatility
- Inaccuracy of current acceptance by some companies