A cryptocurrency is an electronic medium of exchange which is designed to work like a currency. The features used in the cryptocurrencies are digital signatures which protect the financial transactions, regulate the creation of units that are added and verify the relocation of assets. One of the first cryptocurrencies was created to be independent of a government body.
There is no centralized control over the cryptocurrencies unlike centralized electronic money and central banking systems. A distribution ledger technology known as block chain controls the regulation of money. All the transactions of money all around the world are stored in that block chain by miners.
A blockc hain is the public database to record the amount and number of transactions. Bitcoin, the most popular cryptocurrency out there, was first released in 2009. Since then, more than four thousand currencies have come in the market.
Almost ninety five percent of times, you cannot convert cryptocurrencies to real currencies such as US dollars, pound, INR, etc. You can only convert them into other cryptocurrencies or you can use them to buy yourself many things, only at very few places. There are some cryptocurrencies that you can convert to real currencies. But they have alarmingly high volatility and there is a high risk involved in converting them.
And since the cryptocurrencies are decentralized, it is very difficult – even impossible to estimate their value. Nobody knows what influences their value and how. It remains a mystery among the people. And this is why cryptocurrency will never be able to replace any kind of stable currency.
There is method to make a system of exchange rates because it is always under speculation. Another issue that has been realized is the unequal distribution. A few people have more than half of the cryptocurrencies. Estimates say that about a thousand people have half of the total amount of bitcoins.
And if anyone out of those people starts selling or buying something with their cryptocurrency, it will have an effect on the overall value of the exchange rate. These people who hold more than half of the total value can easily influence the value of the currency and they can also change its value in the markets.
The documentation of the ownership changes when the currency itself is transferred from one owner to another. The exchange rates are not established inside the system. Brokers and traders issue the exchange rates. And there is no indication that guarantees the value of the currency proposed at the time of being traded. The merchants and traders, however, should note that cryptocurrency has no value except the value they put upon it.
While merchants and people who have cryptocurrencies issue the rate exchange, the real established and traditional currencies are controlled by central banks of the countries. Real currencies are greatly affected by the economics of a country such as inflation and deflation and therefore their value changes from time to time. And the people who have real money have no direct or indirect influence on its value.