The Road to Better Efficiency and Security of Cryptocurrencies Aimed at Investors


The Road to Better Efficiency and Security of Cryptocurrencies Aimed at Investors

A cryptosystem, or encrypted currency, is any type of financial system that employs a public-key infrastructure (PKI). A Cryptocurrency, as defined by Wikipedia, “uses a unique cryptography technique called the Digital Certificate system. This system is used to provide assurance that a particular transaction was initiated only by an authorized private key… With close links to the Internet, Cryptocurrencies have the potential to empower people worldwide to use money as if it were a virtual asset.” In other words, every time you spend money at an Internet cafe you’re spending your virtual currency (Cryptocurrency), which has been issued under a Cryptocurrency and is stored under the same infrastructure as the traditional monetary system.

A cryptocoin is treated just like any other regular currency by most countries around the world. The problem with cryptosystems is that unlike Fiat currency (such as the US Dollar, British Pound, Euro, Japanese Yen, and Swiss Franc) which are backed by a central government, or even other currencies which have a specified amount of gold (like the Euro, S. Korean Won, and Canadian Dollar), the value of Cryptocurrencies is completely speculative and relies on a highly volatile market. One reason why this is the case is that with the inherent nature of cryptography, once issued, a Cryptocurrency can never be destroyed or disappear. However, there are several ways to “mine” the value of a Cryptocurrency and this is where the problem lies.

Mining is when a company or group of individuals invest their time in analyzing the protocol, the technology, or the ledger in order to attempt to determine whether or not the issuance of a particular Cryptocurrency should be allowed. In the case of a Cryptocurrency, this would be like them “mine” the currency and then try to resell it when it increases in value. One of the most popular forms ofICOIs are referred to as alt coins. Alt coins are issued when a newICOI has been assigned and no original currency or standard asset is attached to it. This can be seen as an alternative method to investing, since instead of investing in the underlying asset, you invest in an entirely new form ofICOI.

There are several problems with the mining ofICOIs, however. First, since Cryptocurts are not backed by a physical commodity (in the case of Fiat Currency or the Euro), when supply diminishes the value of the Cryptocurrency drops. This can create a situation where if enough investors do not buy into the Cryptocurrency, then the value of the standard currency will rise and the value of the alt-coin will lose its worth. Additionally, because of the inflation issue mentioned above, someICOIs may be “printed” out of thin air and it is very easy for this newICOI to become worthless because it does not match the rest of the portfolio.

Another problem is the possibility that some governments may change the definition of Cryptocurrencies tomorrow, and then they will no longer be allowed to function as legal tender. For example, the definition of a Decentralized Autotrading Network might include a number of cryptocurencies such as Dash, Zcash, Dogecoin, and Peercoin. Unfortunately, these currencies are all still on an experimental stage and it is hard to imagine how any government would want to control the cryptocurency. If this happened, it would be inevitable for investors to lose interest in the altcoins.

Despite the above issues, cryptosporters are optimistic about the future ofICOIs. They see a bright future due to the widespread use of the technologies behind Dash, Namecoin, and PIVX. Some of the other technologies being used by Cryptocurrency companies may also influence the future ofICOIs and they include privacy, increased transaction speed and lower costs.