Crypto Currency…a household term?
The term crypto currency was first coined in 1998 but the concept of digital cash came into being in the 80s. It has become a familiar word worldwide in the last decade. It was created accidentally by an unknown inventor known by the pseudonym Satoshi Nakamoto which leads us to think that it was a Japanese discovery. The name is a clear give away. The idea behind this invention was to build a decentralized digital cash system opposed to the physical or fiat money.
Crypto currency in layman’s terms means a digital or virtual currency that is secured by cryptography, which guarantees the security or anonymity of transactions and the participants without the involvement from a central authority and safeguarding from duplicating expenditure.
Currently there are an estimated 4000 crypto currencies in existence with Bitcoin, the original crypto currency and Ethereum ranking as the top two in the world.
Here’s how crypto currency is in use today....
The most significant benefit is undoubtedly the freedom to make large sum private payments fairly anonymously.
It can be used to buy goods and services just like we use normal printed currency. The scope of spending crypto currency ranges anywhere from travelling to buying luxury vehicles; where a vendor accepts crypto payments.
It offers low transaction fees and speedy processing which is especially useful in international transfers.
Another important aspect is that crypto currency transactions can be done by the unbanked too.
Yet another advantage is the easy accessibility it offers. All we need is a smart phone or computer with a steady internet connection to send and receive funds.
What are the risks involved?
Investing or involving in the crypto market is not for the faint-hearted!!
They are highly volatile meaning they are liable to sudden drop or surge in value depending on the climate of the market.
They are unregulated. Till date they are not regulated by banks or governments even though there are current movements to reduce the autonomous nature of these crypto institutes .
Crypto currency transactions are irreversible and they are solely dependent on a series of alpha-numeric characters known as the wallet addresses. Just like you have bank account numbers, these wallet addresses are where you'd be sending and receiving digital currency. A small error in any of the characters can cause the amount be lost forever. This is simply irrecoverable unlike you sending amounts to the wrong bank accounts.
Another related issue is that when you first create your wallet you are provided a series of random words (called pass phrases or secret phrases). You need to carefully note this down in a secure place as once you lose these, you would have lost your entire crypto savings on that wallet.
They are also very much vulnerable to hacking.
They can be affected by forks - a split in blockchain network (a digital ledger of transactions) that can change the course of transactions on that specific blockchain for a period of time.
Where is it headed now?
It is still in its growing stage and good percentage of the world population is either yet to be introduced to this concept or is sceptical about it. The estimated crypto ownership rates at an average 3.9% as of 2021 with approximately 300 million users worldwide. But experts believe that they are here to stay and as we always say about any newbie discovery, it won’t be long when crypto currency will become a household term.
Disclaimer - This article is only meant for educational purposes, please do not construe this as independent advice. We are aiming to publish articles relating to crypto accounting in the near future. In the meantime, if you would like to ask us about your individual or corporate crypto accounting needs, please write to firstname.lastname@example.org