One of the most successful innovations of Blockchain technology is the introduction of cryptocurrency, which emanated as a result of the financial crisis of 2008 which caused severe shrinkage of liquidity in global financial markets and threatened to destabilize and possibly destroy the international financial system, thereby exposing the weakness of a centralized financial system.
Cryptocurrency is a form of digital currency or asset that is based on a network secured by cryptography,[1] and distributed across a large number of computers. This decentralized structure allows assets or digital currencies to operate outside the control of a central authority. Â Cryptocurrencies are digitally mined, unlike traditional currencies that are tangible, seen and touched.
A key and endearing feature of cryptocurrency is the fact that it is mostly decentralized. The activities and viability of the coin are not governed by any central authority, such as any financial institution or any agency of the government. They are largely controlled by the users of the currency (coin) instead, which illustrates the powerful capabilities of today’s technologies, and also underlies the dissent it gets from various quarters.
Cryptocurrencies are not without their challenges however, for instance, they have exhibited periods of extreme volatility, which limits an asset’s ability to fulfill two of the classic functions of money to wit; to act as a stable store of value that people can hold and use predictably in the future, and to serve as a meaningful unit of account that can be used to assign a comparable value of goods and services.
Furthermore, it does not have legal backing in most countries, and this lack of legal backing make consumers vulnerable, as they may not have a legal recourse in the events of mistakes, theft, and security breaches.
[1] Cryptography is a method of protecting information and communications through the use of codes, so that only those for whom the information is intended can read and process it.