There are currently over 2,000 cryptocurrencies and counting. While this indicates that more people are using crypto to solve everyday problems. It is important to be able to differentiate supposed cryptocurrencies from actual cryptocurrencies especially as a cryptocurrency investor.
In this article, we take a look at 6 features every cryptocurrency should have using Bitcoin as a benchmark.
1. Elimination of a Central Party
This is the most distinctive feature between fiat (naira) and cryptocurrency. For fiat, the government and financial institutions give it the value it has. You can use a piece of paper to carry out transactions because the government has placed some value on that piece of paper.
Cryptocurrencies, on the other hand, are peer-to-peer. Its creation is regulated by the blockchain and eliminates control by a central party
Cryptocurrencies only exist online. This means that unlike fiat, it does not have paper or coins.
3. Single Spending
It’s not possible to spend one bitcoin or one ethereum twice or thrice with various users in an attempt to purchase an item. Cryptocurrencies can only be spent once, eliminating the possibility of double spending.
Cryptocurrency transactions cannot be reversed. When a transaction occurs on the cryptocurrency network, it is recorded on the blockchain. For it to be reversed, it would mean that most nodes (think of these as computers) in the blockchain need be altered. Which is an impossible feat to accomplish.
Transactions are done anonymously on the blockchain. This means that senders and receivers have a unique set of characters (public key) which they use to send or receive money without the sender or receiver knowing who owns the public key.
Think of it this way, say you want to donate to a charity that accepts Bitcoin you can send value to them without them know who sent it. However, using the transaction ID you can track the transaction to know when they receive it.
Near Instant Transaction
Cryptocurrency transactions are processed quickly irrespective of the receiver’s or sender’s location.
One thing to keep in mind is the fact that cryptocurrency is not a Ponzi or get-rich-quick scheme. It is a transparent system that was created to revolutionise the financial system. So, before you stamp any coin as a cryptocurrency, step back and ask yourself if it possesses features above.