If we consider what we mean when we talk about a currency, what most people will think about is a method of keeping up with how much value we have exchanged. Currency allows us a common metric for exchanging different types of items, and it offers a flexibility that a pure bartering system would not allow for. We naturally understand that there are major advantages to having a currency system that provides this type of standard to compare different exchanges for their relative value.
With that having been said, there are also some disadvantages now to the traditional methods of currency since they were not designed to operate within our highly technological world that we have today. This is where cryptocurrencies like bitcoin and Ether come into play, and they allow a number of major advantages in today’s environment that cannot be had by traditional currencies. This is the basis of why cryptocurrencies exist, and it’s the perspective you should come from when you read through what follows.
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What is a Cryptocurrency?
On the most basic level, a cryptocurrency is a digital currency whose value is based primarily on some type of computing work. The exact method for determining how each cryptocurrency is different, but it’s similar to how a traditional currency works. With a traditional currency like the dollar, you might sell a loaf of bread for $4. That $4 represents the value the bread had for the person who you sold it to, and you can hold onto that currency until you exchange that value for something else when you use it in a purchase.
With a cryptocurrency, you might “earn” a certain amount by giving computing power as the source of value, much like the bread was in the example above. Then you can hold onto that cryptocurrency until you use it for a different purchase. In this way, a cryptocurrency essentially acts just like a traditional currency in terms of how it’s used to buy and sell in different types of exchanges and transactions. However, it’s the exact medium on which the currency is held and exchanged along with the benefits of that medium (and the differences therein) that make cryptocurrencies stand out.
How Are Cryptocurrency Transactions Protected?
One of the most natural questions that people want to know is if it’s a given that cryptocurrencies are basically just lines of data on a computer somewhat, what keeps someone from simply making up some of the currency on a computer and then using it for purchases? The way this is prevented is through the use of something called a blockchain, which is essentially an anonymous tracking mechanism for each unit of the currency. Each cryptocurrency has its own official blockchain, and it keeps track of every non-counterfeit piece of the cryptocurrency itself. This means that if an amount of the cryptocurrency in question does not have a position on the blockchain, then you automatically know that it’s counterfeit, and the wallet programs simply will not accept it.
The way that a blockchain works is fundamental to the inner workings of a cryptocurrency, an in-depth breakdown of the technical aspects of how it works on a micro level is outside of the scope of this summary. However, the basic idea is that there is a minimum denomination of the cryptocurrency that can be used in a transaction (just like paper money and coins), and this means that there is a finite number of the cryptocurrency in “circulation.” The blockchain keeps track of a specific ID number for each of those minimum denominations of the cryptocurrency that’s specific to the virtual wallet that it’s in.
How is Anonymity Protected If There Are All of These Records in the Blockchain?
Since all of the currency has to be in a wallet at any given time (transfers move it from wallet to wallet), the blockchain could literally tell you the ID of the wallet that every single bit of the currency is in. However, they’re able to keep this record while maintaining anonymity for their users since the specific wallet ID numbers are never tied to any identifying information.
It’s important to note that the actual ID of the wallet isn’t kept in the blockchain as a plain number. It’s encrypted in the same way that a password would be, so you can verify that you are the owner of a certain amount of the cryptocurrency without having to actually give out the ID of your wallet. With that having been said, even if someone did that have the ID of your wallet, the only thing they could do with that piece of information by itself sends you funds. In a lot of ways, it’s similar to having someone’s checking account number with no other identifying information because it can’t really be used for anything nefarious at all by itself.
Why Did the Online Gambling Industry Adopt Crypto Currencies So Quickly?
Online gambling has a few major problems that are inherent in how the Internet connects people from all over the world. The first problem is that traditional payment methods aren’t always the easiest to use at gambling sites. For example, many credit card companies will be overprotective about deposits at online casinos, sportsbooks, and poker sites because they are considered international purchases. This can lead to your card being declined or even temporarily suspended to make sure that someone hasn’t stolen your credit card number. This is a pretty big hassle.
Another problem is that some countries have banking laws that make it difficult to use traditional banking methods like electronic wallets, direct bank transfers, credit cards, etc. with online gambling. The UIGEA in the United States is a good example in that it does not make it illegal to gamble online, but it does put banks in a tricky position where they can be prosecuted if they violate state, municipal or other local laws for allowing online gambling deposits. Many of these banks have simply decided to block all online gambling transactions to protect themselves.
Along these lines, cryptocurrencies provide standardized, safe and secure methods of putting in deposits and withdrawals without having to deal with all of the problems that come up with trying to fit the old paradigm of traditional currencies into the new paradigm of technology. This also means faster withdrawals, less personal information being given out on the Internet and other big benefits.
What is the Future for Cryptocurrencies?
At this point, we don’t really know how far cryptocurrencies are going to go, but we do know that they have picked up a tremendous amount of steam in a relatively short amount of time. Their surge in popularity has come from the simple fact that they are meeting a very important demand in that they offer a type of currency that fits the current technological reality that we live in. Without having to rely on the traditional currencies and traditional banking systems, people have more freedom to make purchases online without having to deal with all kinds of problems from trying to use credit cards, electronic wallets, and other methods online.
In short, cryptocurrencies are going to continue to grow in scope, both in terms of breadth and depth. It will be very interesting to see if they eventually take over the traditional currencies that are out there today, and there’s no way to know what the endgame will be either way.