How Will Cryptocurrencies Change the Traditional Finance World?

Cryptocurrencies are currencies that are in digital form and are usually secured using cryptography (cryptography). The most famous of these is Bitcoin, so I will talk about Bitcoin and then talk about the effects that cryptocurrencies can have in the financial world.

Bitcoin is a digital asset that was created in 2009 by a person or group using the pseudonym “Satoshi Nakamoto” and is considered the world’s first cryptocurrency, and is considered an alternative to traditional currencies (e.g. dollar, euro). It enables decentralized, distributed and often anonymous transactions.

It works on a distributed ledger technology called the blockchain. A blockchain is a record of all transactions, copies of which are stored on many different computers, and are constantly updated. This technology ensures the security and transparency of transactions, at the same time, it does not need a central authority or brokerage firm.

Mining is required for its creation. In this process, computers solve complex mathematical problems and receive new Bitcoins for these solutions. However, it becomes more difficult to generate new Bitcoins every day because the system is designed to stop generating new Bitcoins after a certain number of Bitcoins (21 million Bitcoins) have been produced.

This asset, whose supply is limited just like Gold, is accepted by many people and organizations and is used in more and more places. However, as the popularity of cryptocurrencies has grown, governments and regulatory agencies have also begun to focus on how to regulate and tax cryptocurrencies.

What are the Characteristics of Cryptocurrencies that Separates them from the Traditional Finance World?

1. Faster and Cheaper Transactions: Cryptocurrencies bypass banks and other financial intermediaries and have lower transaction costs compared to traditional financial systems. In addition, transactions take place more quickly compared to traditional banking systems. This is a significant advantage, especially with international money transfers, as cryptocurrency transactions are usually completed within minutes, while international bank transfers can take days.

1. Access to Financial Services: Many individuals and businesses around the world do not have access to traditional banking services. Individuals and businesses that do not have access to a bank with cryptocurrencies gain access to financial services.

1. Greater Transparency and Security: Blockchain technology maintains an unalterable record of transactions. This helps prevent fraud and all transactions are transparent.

1. Innovative Financial Products and Services: Cryptocurrencies and blockchain technology enable the development of innovative financial products and services. For example, smart contracts facilitate and secure financial transactions by providing digital agreements that are automatically executed and verified.

1. Greater Financial Privacy: Cryptocurrencies offer greater financial privacy by protecting users’ identities. This is an important advantage for users who do not want their transactions to be tracked or monitored.

1. Store of value: Cryptocurrencies can be used as a store of value in times of economic and political uncertainty. In particular, some cryptocurrencies, such as Bitcoin, tend to act independently of other asset classes, allowing the investor to diversify their portfolio.

While the future of cryptocurrencies is currently uncertain, developments in this space and growing adoption suggest that cryptocurrencies will continue to play an important role in the world of finance and technology.