Since the appearance of the first cryptocurrency in 2009, the number of its followers has steadily increased. Interest doesn’t weaken, no matter what ups and downs are observed in the crypto sphere.
Today, many of us have heard of cryptocurrency. Well, at least on the subject of Bitcoin. The media hasn’t stopped talking about the mysterious digital money.
However, “in the public eye” doesn’t mean “understandable”. According to studies, many ultra rich crypto investors are poorly aware of what is the thing in which they have invested. It’s just prestigious, say, like a Porsche, and it can bring good profit in the future (or not). But ordinary people who are easily addicted to popular phenomena should understand what this is all about.
In this article, we explain what cryptocurrency is, and briefly answer the popular questions.
It’s meaning is sort of understandable. “It’s sort of” because only a few people think about the cryptocurrency definition in everyday life. Usually “currency” is “money”, for which you can buy food, pay for receipts, go to a movie. As usual, the state issues money, each country has its own currency.
But what is the prefix “crypto”? Cryptography (in other words, encryption) is the method used in our case for making money. If the state issues bills in the mint, then cryptocurrencies are created using a special code.
So, it turns out that cryptocurrency is a digital currency created by a group of developers that exists exclusively in the virtual space, has no physical analogs and is not controlled by the states.
The question is: if this is something ethereal that was created by someone unknown, so why are cryptocurrencies valuable?
Answer: For the sake of example, the Internet cannot be touched either, and hardly every user knows who created it. But, nevertheless, most of us pay providers for the service every month. In other words, visibility and “physicality” are not paramount parameters. Value is shaped by the benefits, field of use and, of course, the presence of interested users.
Countries that develop regulation of a relatively new phenomenon, define cryptocurrency differently. Someone sees in them a kind of security, someone — property or goods, others — means of payment. But, initially, virtual coins were conceived as anonymous, safe, and bank-free money that can be used to pay for goods and services.
A number of certain questions arise if we consider the original concept of digital independent currencies. How to get cryptocurrency? How to store it? Where can I use it? Why are virtual coin prices rising? Why go through all that trouble if we have a real currency?
Any type of cryptocurrency doesn’t have official status as a means of payment (a number of countries have already recognized Bitcoin, but this issue is still under discussion). However, typical properties like decentralization are attractive to users. The owner of any existing cryptocurrency is not tied to any geographical point, state or political system. Despite linking courses with real money like the US dollar or the euro, digital money is “valuable on their own”.
Virtual money has gained popularity for the following reasons:
Due to the high reliability of electronic wallets protected by a private key, cryptocurrency can be used to create savings. They will be useful as a universal means of exchange, the method of calculation in online stores or on freelance exchanges.
Where does a cryptocurrency exist, store and circulate? Everything is approximately clear with fiat (bank money) because there is a banking system. And even if the real money is transferred in digital form (through the app or using electronic payment systems), you can imagine how funds are saved and transferred. But everything is not so clear with the lines of code.
Here it’s worth telling about the next concept — the blockchain. If you translate it literally then you get a “chain of blocks”. But what are these blocks, and what is this chain?
Blockchain is a decentralized system based on a distributed registry: a sort of a book where all network operations are recorded. It’s decentralized because transactions or blocks creation records are stored on all computers that support the system at the same time.
As soon as the user sends his cryptocurrency or accepts it — a new block is formed, which is recorded in the registry. So the chain is built.
Does it sound complicated anyway? Then we will try a more understandable example. Let’s say you have a bill and the cover letter that traces its path since its inception. For example: “your bill has been issued on a particular date and then it has been used ten times”.
It looks even clearer on the scheme:
How blockchain works
What are the advantages of the blockchain and why is this technology gaining popularity? The fact is that innovation has very attractive features:
True, it’s fair to note that the blockchain also has problems. For example, a low speed of information processing (confirmation of transactions) and a small block capacity. Developers and enthusiasts of the most popular blockchain platforms are constantly working on solving these problems to improve the network.
Cryptocurrency has gained popularity after some Satoshi Nakamoto (or was it a so-called organization?) published technical documentation of Bitcoin in a small community of programmers and cryptographers. It’s noteworthy that his project, as it turned out later, was largely based on the ideas of Nick Szabo. He presented his work to the public long before Satoshi. It was about the development of digital money based on cryptography.
The ability to make transactions anonymously quickly attracted fraudsters from around the world. It’s reliably known that the first rays of popularity came to Bitcoin due to the fact that its qualities were highly appreciated by representatives of the Silk Road marketplace, where has been traded weapons and prohibited substances.
After law enforcement agencies managed to close the site and arrest its organizer (the arrest was made on October 2, 2013), Bitcoin managed to get out of the “shadow” and stopped to be associated only with black-market trading among potential users.
Further, the history of the first cryptocurrency has a mass of ups and downs. New digital money technical components appeared on the market. However, the main thing was the gradual spread of cryptocurrency, as fiat’s main competitor.
The issue of cryptocurrency regulation takes not only officials but users are also interested in its resolution. Some investors legalize cryptocurrency, others are afraid, because, in their opinion, regulation is a euphemistic synonym for restrictions in favor of the state.
The cryptocurrency market is regulated by such legal instruments:
In order to start working with cryptocurrency, each user must create his own wallet where it will be generated the address (for sending and receiving funds). Then, he will require the acquisition of digital money. To do this, one can use exchanges.
Important! Some exchanges work exclusively with cryptocurrencies. Before registering, it’s important to clarify whether the site accepts funds to replenish the account.
Then you can safely begin to use cryptocurrency as intended (for making payments) or to withdraw profit (trading, investing, and so on).
Interesting! You can become the owner of a cryptocurrency not only through its direct purchase. To get it, you can participate in bounty programs and airdrops. Alternatively, there are various contests and the so-called “faucets” (resources that provide payment in cryptocurrency for the processing of simple tasks, for example, for entering a captcha).
There are several ways to use cryptocurrency:
Cryptocurrency is a new word in the world of finance. And although the first virtual coins appeared in 2009, only now the phenomenon has begun to gain breadth and depth, going beyond a small party of geeks.
The crypt has room to grow and improve before it becomes publicly available and massively used. For example, there are still unsolved problems with the speed and cost of transactions, high mining expenses, and basic usability. It’s not as easy for every PC user to immediately understand how to create a wallet, make a transaction, or how to run a project on the blockchain.
Since the cryptocurrency market is now being formed, it’s difficult to say in advance what it will be in five or ten years, what will remain from the initial plan in connection with the regulation. It’s not yet known how the trade-off between anonymity and security will be solved, which disturbs large investors, and how Bitcoin and altcoins will clear their own reputation. While cryptocurrency is often associated with money laundering and terrorist financing, fraud and the risks of hacker attacks. However, many people see prospects in blockchain technology and cryptocurrency.
We also should mention a new project from Facebook that plans to implement the Libra cryptocurrency and Calibra wallet in order to make money transfers more easily around the world. The phenomenon is unlikely to disappear somewhere, and the sooner we will have to face it. And better sooner than later.