The potential of cryptocurrency as an investment has been realized by many parties. Not only for individuals, groups, and companies, but also countries. The story of El-Salvador, recently announced that Bitcoin is recognized as their country's currency. El Salvador became the first country in the world to adopt bitcoin as its national currency, allowing people to use a digital wallet to pay for everyday goods. However, when we discuss Bitcoin, people will understand that Bitcoin is a cryptocurrency. This sounds funny! Considering Bitcoin is one of the many coins circulating in cryptocurrency.
So, what is cryptocurrency?
Yes! Cryptocurrency is a digital currency that works on blockchain technology using cryptography so that it is almost impossible to counterfeit. Blockchain is a decentralized technology spread across multiple computers that manages and records transactions in a distributed ledger operated by a network of computers. Distributed systems are generally not issued by a central authority or third-party interference. The best part of this technology is its security. In cryptocurrency, we know 2 terms, namely coins and tokens.
Token vs Coin
Coins are digital assets that are hosted on their blockchains like Bitcoin working on the Bitcoin blockchain and Ethereum running on the Ethereum blockchain. Coins are created through a mining process with a Proof of Stake or Proof of Work mechanism. Meanwhile, tokens are digital assets created in decentralized applications hosted on the other blockchains, through an Initial Token Sale (ICO). Usually, tokens are issued because of a single project in progress.
In general, coin crypto is like coins in real life - as money. They exist only to be stored or traded as a form of currency. Meanwhile, tokens are exchanged for something related to the project and can be used for investment purposes, to store value, or to make purchases in the project ecosystem. Tokens are usually intended as a medium of exchange to run a service from the project that provides the token. Tokens can also function as digital assets to represent ownership. Coins give users access as a currency that can be used to buy and sell goods. Investors can buy tokens with coins, but not vice versa. Coins operate independently, while tokens have a specific user and only provide access to services or products in the project ecosystem.
How do cryptocurrencies work?
We describe from this illustration. People A has made transactions to people B as receivers. All networks connected to the blockchain will record this history such as the size of the transaction and the amount of the balance. Then the entire network will immediately know the information containing an explanation that a certain number of transactions have occurred and have been digitally signed by providing a private key to the system. This system is called blocks and is permanent, it cannot be changed, forged, or hijacked. This system makes crypto transaction security very high.
How does the world accept cryptocurrency?
A decentralized cryptocurrency system on the blockchain, making many business people adopt crypto into their business. We know, Bitcoin was one of the first cryptocurrencies, and the public doubts about its future. And now, Bitcoin is not only recognized and used to buy goods or services but has become a recognized currency in a country. In Indonesia itself, crypto has not been recognized as a legal currency to replace fiat money, but crypto is registered in commodity assets, and regulations regarding trading crypto assets in Indonesia are currently regulated by the Commodity Futures Trading Supervisory Agency (CoFTRA) of the Ministry of Trade (Kemendag). Unlike in some other countries cryptocurrencies can be used for transactions, in Indonesia crypto-assets can only be traded on futures exchanges.