CRYPTOCURRENCY: CURRENCY OF THE FUTURE WHAT IS CRYPTOCURRENCY

A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit. Many cryptocurrencies are decentralized networks based on blockchain technology. A defining feature of cryptocurrencies is that they are generally not issued by any central authority. Cryptocurrency is a form of payment that can be exchanged online for goods and services.

As the name suggests, it is a combination of “cryptography” and “currency”. Some of us are still not be able to fully understand what the term cryptography is, and how is it connected to cryptocurrency. I have made an attempt to present a broader view of cryptography and how it is connected to cryptocurrency.

Businessman in blockchain cryptocurrency concept

CRYPTOGRAPHY

Cryptography is basically the process of encryption of certain information so that the same can be kept private from the parties who are not a part of it.

NEED OF CRYPTOGRAPHY

Generally speaking, it is needed to prevent confidential information from being stolen or compromised by people who are not a part of it. With the help of this, it becomes possible that only the connected parties have access to the sensitive information that is being encrypted.

IT’S USAGE IN CRYPTOCURRENCY

Cryptocurrencies use cryptography for the following main purposes to shield sensitive transactions, to contain the creation of additional information, and to justify the transfer of assets. To accomplish all of these things, cryptocurrencies rely on “public key cryptography.”

PUBLIC KEY CRYPTOGRAPHY

It involves a technique in which a user has both a public and a private key. Both are encrypted and are like a random combination of texts and numbers Eg. 5fu8nMhUndgddTbhdyU7b45cuj76bH. These keys tend to be around 30 strings long. The purpose of the public key is to give people an address to send the information. The purpose of the private key is to unlock the public key in order to gain access to the contents of the sender.

Therefore, only the person who knows the private key can unlock the information. One can take example of bank locker to understand this. Both the keys of locker should be present in order to open it. Anyone can deposit money to a public key, but only the one having private key can access the same. This allows people to receive money and access it without other people being able to access the same.

IT’S VULNERABILITIES

Probably the biggest vulnerability that cryptography faces is people accidentally losing or revealing their keys to other people. If a person lost his/her private key, then they may have no way of recovering any funds that may be in his/her wallet. A person should never share its private key information with anyone except the person he/she trusts. Possible ways of preventing it from loss/theft is to use hardware wallets, currency insurance etc.

HOW CRYPTOGRAPHY MAY CHANGE THE FUTURE

Presently, it is working extremely well so it is unlike that major changes to the underlying public key cryptography structure will take place.

However, because technology tends to improve over time, it is possible that someone could invent a system that is even better than this. If this happens, then many of the main cryptocurrencies will probably be updated to make them in line with the latest developments and making cryptocurrencies even more secure.

The public key cryptography is at the heart of their strength and continues to be a major factor healing their growth. In the next decade, it is quite possible that cryptocurrencies could start to seriously compete with the USD and other paper-backed currencies.

About the publication:

This is the first issue of my educational series on “Cryptocurrency: Currency of the Future”. I will cover facts about cryptography in detail in five issues. Second issue of this educational series will be released on May 25, 2021. For further issues, please stay tuned. Stay Healthy, Stay Safe.

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Author Bio

Qualification: CA in Practice
Company: J.N. Sharma & Co.
Location: KANPUR NAGAR, Uttar Pradesh, India
Member Since: 19 Feb 2021 | Total Posts: 8
A practicing chartered accountant mainly dealing with the matters related to GST, Income Tax, TDS, TCS and Audits. View Full Profile

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