Digital currency or cryptocurrency is considered an innovation that was conceived around year 2008 although it was not entirely new. The first cryptocurrency Bitcoin was created by Satoshi Nakamoto. According to the creator, he rationalized that the world could use a digital currency based on cryptographic proof, without the need to trust a third party middleman for effortless and secure transactions,
“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with hardly a fraction in reserve. ”
This coin went on to inspire the invention of more than thousands of coins, most of which are generated from fundraising events called ICOs (Initial Coin Offerings).
Existing investment products, such as fiat currencies, gold, and energy resources are traded with intermediaries or moderators. For example, the exchange rate is controlled by the national central bank, the Federal Reserve prints banknotes on their own influencing demand and supply, and the OPEC oversees oil resources and its export policies. Cryptocurrency is different from such investment products because it is a product by which intermediaries are eliminated.
In simple terms, cryptocurrency is built on a digital platform through a technology called Blockchain. Everyone can trade and own cryptocurrency via a platform called an exchange, which acts as a middle-market but does not control prices and demand-supply. Cryptocurrency derived from an ICO fundraising will generate its own value, most of them with their own utility in their respective ecosystems. These coins or tokens have proven useful in many applications so far, but are admittedly highly speculative investment products with extremely volatile price patterns.
Cryptocurrency is an intangible product but has the financial value of money as we know it. One may buy into coins through a) the primary market via an ICO, b) the secondary market or by trading on an exchange, and c) by mining coins (only mineable cryptocurrencies).
At present, there are many investors, both individuals and institutions entering the cryptocurrency market. Others remain interested yet hesitant in investing and it is definitely worth reading up in depth to better understand cryptocurrencies and see the potential value they can bring to disrupt existing processes.