Cryptocurrency is a digital currency that is currently controversial. This is how cryptocurrency works, the types and the investment risks.
Cryptocurrency is one of the new types of currency in the world. Unlike currencies in general, this currency has no physical form and can only be used for digital transactions.
In Indonesia, Cryptocurrency has started to become popular in the last 2 years. However, abroad the reverberations existed around 10 years ago. So, what are cryptocurrencies? How does it work? The following is the discussion.
What Are Cryptocurrencies?
Terminologically, cryptocurrency is a combination of the words crypto and currency. The word "crypto" comes from "cryptography" with the meaning of secret code. Meanwhile, the word "currency" comes from English, meaning currency. Thus, cryptocurrency is electronic money created based on cryptographic technology, with the ownership code kept secret to its owners only.
Since its first appearance 10 years ago, cryptocurrency is a digital currency that has attracted many pros and cons. Especially in 2011, when cryptocurrency prices rose drastically from $1 to %3200 per chip in just 3 months.
Cryptocurrency Development in Indonesia
Cryptocurrencies in Indonesia have been legalized as a form of savings or traded as assets. However, cryptocurrency in Indonesia cannot be used as a legal means of payment. This is in line with the issuance of Law no. 7 Article 1 Paragraph 1, 2011 regarding the only legal means of payment accepted in Indonesia is Rupiah.
You don't need to worry when using Cryptocurrency in Indonesia, because this digital currency is protected by PP No. 5 of 2019 issued by the Indonesian Commodity Futures Trading Supervisory Agency, regarding the technical implementation of the physical market for crypto assets on the exchange.
Types of cryptocurrency in Indonesia that have obtained legal permission include Bitcoin, Ethereum, Tether, Xrp/ripple, Bitcoin cash, Binance coin, USD Coin, Lightcoin, Bitcoin sv, Litecoin, and others.
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Characteristics of Cryptocurrencies
After discussing what cryptocurrency is and its development in Indonesia, here are several characteristics that make crypto money different from other exchange rates. The characteristics of cryptocurrency are:
1. Digital
First, the characteristics of cryptocurrency are digital. This currency does not have a tangible form like paper money or coins, so it cannot be held. Therefore, cryptocurrency is a currency that can only be used in cyberspace.
2. Peer-to-peer Transactions
Transactions using cryptocurrency occur from one person to another virtually. The cryptocurrency transaction process is passed from the sender to the recipient online, without any direct meeting between the parties involved in the transaction.
3. Global
Furthermore, the characteristic of cryptocurrency is that it applies globally. In contrast to physical currency where transactions are limited, cryptocurrency can be used anywhere without country borders and price differences due to exchange rates.
4. Encrypted
The next characteristic of cryptocurrency is that it is encrypted. When transacting in the blockchain world, you cannot know who the real owner of the cryptocurrency is, because the owner's identity is protected by a secret code.
5. Decentralized
Cryptocurrency transactions occur without involving an intermediary. Each user is responsible for their own transactions, without any protective party. Therefore, when a loss occurs in the blockchain world, cryptocurrency owners cannot sue any financial institution.
6. Truthless
Lastly, the characteristic of cryptocurrency is that it is truthless. In this digital currency transaction, you cannot entrust your crypto balance to a party or institution such as a bank. The only way to store your crypto money is to use an e-wallet account from a transaction provider or create your own storage.
How Cryptocurrency Works and Its Risk Factors
After discussing what cryptocurrency is and its characteristics, this time we will discuss how cryptocurrency works in the blockchain market. Just like money in general, cryptocurrency can only work if it is bought and sold. If you want to have crypto money, you need to make purchases using conventional currency or do crypto mining.
In more detail, the following is the flow of how cryptocurrency works:
- First, the owner of crypto money sends one of the cryptocurrencies to another person as a result of a transaction.
- Transactions are diversified and stored on the blockchain, a large cloud in the form of a shared database belonging to the world's crypto owners.
- The information on the blockchain is encrypted and converted into a secret code, then given to the new owner of the cryptocurrency.
- Blockchains are run by many different people and companies using high-capacity computers called nodes.
- Nodes or people running the blockchain from computers will earn rewards in the form of new cryptocurrency if they verify transactions.
- The price of cryptocurrency in the market is based on the demand and supply of that currency. If demand is high, the price of the cryptocurrency in question will also rise, and vice versa.
Types of Cryptocurrency
After understanding how cryptocurrency works, next we will discuss the types of cryptocurrency that are traded on the blockchain market. For your information, what OCBC NISP explains below is not the brand, but the type. The types of cryptocurrency are:
1. Bitcoins
Bitcoin is the first type of cryptocurrency and is popular among crypto investors. This currency was created in 2008 by an internet personality named Satoshi Nakamoto. Initially, the price of the Bitcoin cryptocurrency was set at $1 per chip. However, now the price has soared to $20 thousand per piece.
2. Altcoins
Altcoin is a type of cryptocurrency as a term that refers to any coin except Bitcoin. The word “altcoin” means “alternative to Bitcoin”. As is known, bitcoin has complicated mathematical computations. Well altcoins were created as a simple form of bitcoin. To date, hundreds of altcoin brands have been created, such as Peercoin, Litecoin, Dogecoin, Auroracoin, and Namecoin.
3. Token
Next, the type of cryptocurrency is a token. Unlike altcoins, tokens are created and awarded through an Initial Coin Offering (ICO). The form of the offer is the same as a share offer. Tokens can be represented as value tokens (Bitcoin), security tokens (to protect your account), and utility tokens (designated for a specific use).
4. Government Currency
Lastly, the type of cryptocurrency is government cryptocurrency. This type is a cryptocurrency issued or inaugurated by the government of a country. Not many countries have their own crypto governments. However, Bank Indonesia recently announced that it is planning to create BI Crypto.
That is an explanation of what cryptocurrency is, how it works, characteristics and types. As of now, cryptocurrency investment is an activity that has many pros and cons. Therefore, before diving into the world of digital currency investment like this, learn about the risks first. Welcome to the world of blockchain!
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