What you need to know about cryptocurrencies

A new age of currency is upon us and you may have seen or heard snippets of news on crypto currency. Bitcoin, ethereum, litecoin, dash and a lot more are all different types of crypto currencies. 

A crypto currency is a form of digital currency which uses encryption techniques to regulate the generation of units of currency and verify the transfer of funds; it also operates independently of a central bank or government legislation. It provides a rather radical alternative to current investment options, as well as an isolated currency system devoid of any political influence.

The anonymous Satoshi Nakamoto is credited for creating bitcoin: by far the most valuable crypto currency. He intended to create a peer to peer electronic cash system in an attempt to solve the old age problem of a centralized digital cash system.                

Cryptocurrencies are mined (internet equivalent of mint) using the block chain technology. The block chain is a huge decentralized digital ledger that records every single transaction. It is made up of a huge network of computers across various locations that keeps records and updates every transaction. A transaction is not complete until all the peers have updated and “agreed” that it is a unique and legitimate one.  Miners are the only ones who can confirm transactions; they stamp transactions as legitimate and spread them to the network.

Some key characteristics of the creation and transactions of crypto currencies like bitcoin are:

1. Transactions are secured using cryptography
2. Transactions are pseudonymous– transactions are not connected to any real world entity.
3. Transactions are not reversible– reason why one needs to be absolutely sure of what and where one sends the coins to.
4. Transactions are fast and global. – Good for remittance.

 

Prices of cryptocurrencies have skyrocketed in the past 6 months, with bitcoin reaching an all-time high of $5000, and tumbling down to $3,560 at the time of writing this article, mainly due to the Chinese government clamping down on cryptocurrency trading and a show down from the JP Morgan’s Jamie Morgan touting bitcoin as a fraud waiting to blow up.

 

Howbeit, the price of 1 bitcoin has quadrupled from about $1000 at the beginning of 2017; therefore, if you bought one or a fraction of a bitcoin in the last 9 months, you must be smiling.

 

The skyrocketing trends have generated a lot of interest around the world, causing people from all sorts of backgrounds to invest, but with a great deal of caution.  No one knows for sure what is behind the soaring prices of bitcoin, is it the future? Investors themselves have divided opinion on this, due to the inability to see into the future and the unpredictability of the position to be taken by major governments.  It depends on legislation by the various governments and how they will embrace it. Like mobile money in Africa, this will be a great way to assure asset security to the populace especially in countries with destabilized economies due to political influences.

 

China, in recent days, has clamped down on start-ups offering shares in cryptocurrencies and there are rumours of impending crack down on cryptocurrency exchanges in the Asian country. Japan, on the other hand, has embraced cryptocurrencies in some stores and has 3 of its major banks backing the cryptocurrency exchanges in the country.

 

Just as Facebook, Google, Uber, Netflix have chased out the traditional businesses like advertising, taxis, video rentals, crypto currency is set to create an internet of monies and there is potential disruption to the traditional financial systems. Bill Gates is quoted as saying “Banking as a function is necessary, Banks are not”…. Will cryptocurrency be a fulfilment of this saying?  A government that will embrace cryptocurrency will benefit so much by owning the internet of money. The basis of how cryptocurrencies work is primarily a C++ language and cracking down on this implies cracking down on innovation and jobs.

Bringing it down to our context in Ghana, embracing cryptocurrency means creating jobs and enlarging our budding ICT footprint, businesses will have easier access to cross border trade and remittance from the diaspora will be much cheaper.

In 1994, before the introduction of web browser for the internet, people pushed against the internet because it was not regulated and had decentralized ownership.

This certainly sounds like a déjà vu! … To be continued...

 

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