The term 'Crypto Currency' is included in the Banking edition of the Financial Dictionary. Get your copy on Amazon in Kindle, Paperback or Audio edition. Choose your edition here...
A crypto currency turns out to be a virtual currency. These alternative currencies deploy cryptography as a means of security. It makes them extremely hard to counterfeit since this security feature is complex. An element that consistently defines the various crypto currencies and simultaneously endears them to users is their independent nature. They cannot be issued nor controlled by any of the global central banks or world monetary authorities. The theory is that this makes it difficult (if not outright impossible) for governments to manipulate or control such currencies.
Unfortunately for the governments of the world, this somewhat anonymous characteristic of the global crypto currencies also makes them an ideal vehicle for illegal and otherwise unethical activities. Among these are drug dealing, tax evading, and money laundering carried on around the world.
The world’s original (and still leading) crypto currency proved to be Bitcoin. This was the first of the alternative currencies that caught on with the general and investing public. A mysterious individual or group of individuals who go only by the pseudonym of Satoshi Nakamoto created and launched Bitcoin back in 2009. These BTC (as they are abbreviated) must be mined in a tedious process which involves solving complex computer algorithmic problems. There is a maximum limit of 21 million to the total number of BTC which may be created. As of September of 2015, already 14.6 million of these Bitcoins had been mined and were circulating. The success of Bitcoin has been so vast that other competing crypto currencies have been spawned over the years.
The greatest and most successful of these is Ethereum, or Ether tokens. Others that have appeared include Litecoin, PPCoin, and Namecoin. These descendants of Bitcoin are often referred to as altcoins. This name is a derivative of the phrase bitcoin alternative. All of these crypto currencies have at least one thing in common. They all rely on a decentralized control. This stands out in direct contrast to the centralized banking systems of the mainstream traditional currencies.
There are a number of advantages and also some disadvantages to the major crypto currencies and this ground breaking technology. On the positive side, the crypto currencies enable simpler, cheaper, faster transfers of funds between one party and another in a commercial transaction. The transfers of funds occur utilizing both private and public keys to provide greater security.
The transfers happen with the lowest of possible processing and transaction costs. This has disrupted traditional banking and finance significantly. Individuals who transact in a crypto currency are able to side step the hefty middle man fee of financial institutions such as banks with their wire transfer costs, or with money transfer services like Western Union and Money Gram. These last two services charge upwards of ten percent transfer fees.
The great brilliance of Bitcoin and the other major crypto currencies lies in their block chain technology which acts as storage for the transaction ledger online. In fact all transactions in the BTC technology and currency which have ever happened are maintained in the block chain ledger database. Major banks like JP Morgan Chase have already invested heavily in initiatives to reduce the transaction costs of payment processing and transfers utilizing especially the up and coming Ethereum crypto currency.
This does not mean that there are not downsides to the crypto currencies. As they lack a central offline repository, the balance of an online wallet can be completely wiped out by either the invasion of hackers who steal it or the advent of a single computer crash if owners do not backup their holdings with data copies. There is also the negative of the wildly gyrating volatility in the currencies, which can easily swing up or down by even ten or twenty percent in a single trading session or week. There have also been more than 40 instances of online hacking theft of the various Bitcoin exchanges and companies in the short decade of Bitcoin history.