The Right Balance of Public and Private Cryptocurrencies

  • February 9, 2022
  • Jennifer Moore
The Right Balance of Public and Private Cryptocurrencies

The rising global legalization of bitcoin and blockchain incorporation is elevating cryptocurrency’s position as a vital financial instrument. Corporations around the world are utilizing this promising technology to increase operational efficiency through better documentation, reduction in overall costs, and payments processing. The progress can be raised further through the right selection of public and private cryptocurrencies. 

Crypto Mechanics

Cryptocurrencies operate on a blockchain architecture. The technology utilizes distributed shared ledgers accessible to all the network members (node). The ledger contains transaction records validated by a uniform consensus across the blockchain network. 

In general, banks and financial institutions keep one ledger for keeping track of possible transactions. Cryptocurrencies on the other hand have a copy of the same ledger for each member, updated in real-time. This provides a huge advantage to digital assets in terms of financial payment processing, including cross-border settlement. Records once entered are permanent and immutable, preventing chances of fraud. The process is also faster and much cheaper than traditional services, leading to its incorporation by major names in the global banking sector. 

Also Read: Bitcoin and Dark Matter: An Introspection through Finance, Physics, and Cosmology

Public and Private Cryptocurrencies

There are two broad classifications of cryptocurrencies- Public and Private. Without further ado, let’s see what they are all about. 

Public Cryptocurrency

Transaction records of public crypto assets are traceable and can be linked to the user’s wallet IDs. In general, public cryptocurrencies offer pseudo-anonymity i.e. it does not reveal the user’s identity. However, it is not difficult to decipher or trace the user’s wallet details. Popular examples include Bitcoin, Ethereum, and Litecoin. 

Private Cryptocurrency

The blockchain’s shared ledger technology leads to the visibility of each transaction throughout its network. Private crypto assets allow users additional layers of privacy by masking the wallet addresses with multiple cryptographic measures. Examples of private cryptocurrencies include Monero, ZCash, DASH, and more.

The Interoperability Factor

The blockchain and cryptocurrency sector can attribute its rapid success to interoperability. The ease in interoperability between multiple accounts across the networks makes cryptocurrencies a more efficient alternative for payment processing. Payments through cryptocurrencies are faster, cheaper, and do not require any third-party intermediaries. There are objectives that must be completed for proper interoperability.

Multi-account ledgers keeping tabs on transactions and funds are capable of instantly processing payment between any two existing accounts on that ledger. The ledgers are considered interoperable if there lies one (or more) intermediary holding accounts on both the ledgers. Negligible transfer latency and expenses on the user’s end are also crucial for raising the impact of interoperability on payment system efficiency.  

Also Read: Interoperability Crucial in CBDC: HashCash

Recent Developments on CBDC

The possible benefits of blockchain and cryptocurrencies have not gone unnoticed by governments around the world. The Chinese rollout of the Digital Yuan triggered governments around the world into R&D and allocating resources towards CBDC. Notable examples of nations conducting or planning a Central Bank Digital Currency launch include India, Brazil, Russia, and more.                                                                                                           

The Need For A Balance

National governments are looking forward to developing CBDCs. In addition to cost-cutting while processing payments, the inherent blockchain architecture can also help put down money laundering and the prevention of cybercriminal activities. CBDCs are against the very principle of blockchain decentralization i.e. the absence of a centralized figure. 

In the wrong hands, the possible implications of CBDCs can undermine financial freedom and privacy. Centralized digital currency systems vests powers that are far bigger than before. There has been growing dissent within the crypto community, warning everyone against the dangers of CBDC. 

As the saying goes, with great power comes great responsibility. Governments launching CBDCs must ensure that the product fulfills the objective of addressing the shortcomings of conventional fiat currencies. The need of the hour is therefore striking the right balance between CBDCs, public and private cryptocurrencies. 

Also Read: Decentralized Economies Can Grow from the Proper Balance of Cryptocurrency And CBDC

Final Words

Rising global awareness and adoption are quickly increasing investment and trading options for crypto enthusiasts. Both public and private cryptos have distinct features and advantages, and it is not sensible to rate one over the other. It is crucial to make a proper balance, that serves the best interests of all associated parties.

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