A cryptocurrency is a form of decentralized digital asset that is based on blockchain technology and computer code to operate somewhat on its own, without the control of governments and central authorities. For instance, cryptocurrency is a peer-to-peer electronic currency system that is fast, cheap, and invulnerable to censorship and other forms of corruption or control. The cryptocurrency was discovered in 2008 by an unknown person or group of people using the name of “Satoshi Nakamoto”. Currency has begun to be used in 2009 when it became active as open-source software. 

Types of Cryptocurrencies 

Bitcoin was the first blockchain-based cryptocurrency, which is still considered the most popular and oldest. Bitcoin was introduced in 2009 and there were over 18.8 million bitcoins exchanged in a total market cap of around $858.9 billion as of August 2021. Bitcoin is viewed as a legitimate means of exchange and many well-known companies accept Bitcoin payments. 

Ethereum is the second most popular cryptocurrency after Bitcoin which is invented in 2015. Ethereum launched for market-making some improvements to Bitcoin’s basic structure. It uses “smart contracts” to enforce the performance of transaction parties. It is a decentralized software that allows a third party to build and operate smart contracts on its network without any control or fraud. 

Litecoin was created in 2011 and is one of the first few cryptocurrencies that followed the same basic structure as Bitcoin. Despite being a used structure of Bitcoin, Litecoin offers a faster transaction time and generates blockchain at a faster rate. Litecoin is being second or third most popular cryptocurrency when considering market capitalization. 

Dogecoin cryptocurrency was created using a popular memoir depicting the Ziba Inu dog as its icon. This memory was as popular as the cryptocurrencies that went up in price after the backing of Elon Musk, CEO of Tesla. Musk was able to shake up the already volatile crypto market by backing the meme coin. 

Cardano was created by a team of mathematicians, engineers, and cryptographers with a research-based approach. Cardano claims to be the most sustainable and balanced coin in the cryptocurrency ecosystem compared to other cryptocurrencies. 

What is the purpose of Cryptocurrency?  

The main purpose of cryptocurrencies is to solve the issues of traditional currency by delegating the power and responsibility in the hands of the money holders. Because, many specialists see blockchain technology as having significant potential for online voting and group financing, and leading financial institutions also see the potential to reduce transaction costs by simplifying the payment process. 

Advantages of Cryptocurrency  

• Generally, Cryptocurrency transactions are a quick and straightforward process. For example, using only a smartphone or computer, Bitcoins can be transferred from one digital wallet to another.  
• All cryptocurrency transactions are recorded in a blockchain, which is considered a public list. Blockchain technology activates its existence and allows people to trace the history of Bitcoin, which can prevent them from spending coins that they do not own and making copies or transactions. 
• The blockchain process is cut out intermediaries (banks & online marketplace) which means there are no more payment processing fees. 
• Cryptocurrencies are widely used by many large organizations and sectors, including fashion and pharmaceuticals. It has become one of the leading digital currencies in the market. 

At the same time, Cryptocurrency also holds its risks and disadvantages.

• There is high possibility to lose your virtual wallet or delete your money. There have also been thefts from websites that allow you to store your crypto money remotely. 
• Cryptocurrency exchanges can be vulnerable to cyber-attacks, which can cause irreversible damage to your investment. 
• Cryptocurrencies can be vulnerable to fraud. Fraudsters often use platforms such as Facebook, Instagram and Twitter to deceive people into these investments. 
• The cryptocurrency market is not controlled by the Financial Conductivity Authority (FCA), so there are no laws to preserve your business. 

How to Invest in Cryptocurrency? 

Cryptocurrency can be purchased from networks and cryptocurrency exchanges between peers such as Coinbase and Bitfinex. However, be aware of the fees as some of these exchanges may incur high prices for small crypto purchases. More recently, the investment app Robinhood has begun offering the ability to purchase some of the top cryptocurrencies, including Bitcoin, Ethereum, and Dogecoin, free of charge on many major exchanges. Nowadays it is easy to deal with cryptocurrency even for crypto amateurs. Unfortunately, there is currently a shortage of crypto funds. But keep in mind that each cryptocurrency purchase is a small individual stock purchase. Because you put all your money into one security, you are more at risk than a mutual fund or exchange-traded fund (ETF) as you can spread it over hundreds or thousands. 

As the market price for cryptocurrencies is based on supply and demand, the rate at which cryptocurrency can be exchanged for another currency can fluctuate extensively, ensuring that most cryptocurrency designs are at a high level of scarcity. Moreover, studies indicate that the cost of producing bitcoin, which requires more energy is directly related to its market price. Cryptocurrency blockers are highly secure but do not protect the exchange of the cryptocurrency ecosystem and other elements, including the wallet from intrusions. In the 10 year history of Bitcoin, several online exchanges have been hacked into millions of dollars worth of coins have been stolen. 

Cryptocurrency usage in the world  

TripleA, a cryptocurrency and blockchain technology company, estimates that there are currently more than 300 million cryptocurrency users worldwide. The average crypto ownership rate by country is 3.9%, and more than 18,000 businesses worldwide now accept some form of cryptocurrency payment. About three out of five crypto users are male, and users can be young and educated, regardless of country. 

Cryptocurrency usage in the Sri Lankan context 

The Central Bank of Sri Lanka has not yet approved cryptocurrency for transactions and users of those transactions must bear the potential risk at any time. The Central Bank of Sri Lanka has previously issued a warning to the public regarding the use of cryptocurrencies. Cryptocurrencies such as Bitcoin and Ethereum are widely traded but are not yet accepted for transactions, loans, and deposits in Sri Lanka. However certain stores and service providers have started accepting cryptocurrency as payments, but they are still at the initial stage. Central Bank has started to use new clearing technologies such as blockchain and provide virtual currency to compete against rapidly growing cryptocurrencies. Cryptocurrencies are not yet come into general use in Sri Lanka. Therefore, it has been in use for some criminal purposes because of its anonymity. 

Cryptocurrency is a fascinating concept that has the power to turn fundamentally after global financialization.

Beware of its advantages while not forgetting its own disadvantages, tread safely on the digital currency world to be on the safer side.

Written by Rtr. Nathasha Geekiyanage