What is cryptocurrency?

What is cryptocurrency?

In simple words, cryptocurrency is digital money that exists only in the form of virtual coins and is created on the network without the participation of real money. Cryptocurrency can be stored in special electronic wallets and transferred between wallets directly, bypassing banks. There are more than 2500 types of cryptocurrencies.

Bitcoin is the most famous and first cryptocurrency that was launched into the network during the 2009 crisis by the mysterious Satoshi Nakamoto. Now we can talk more about what is cryptocurrency.

What Does Cryptocurrency Mean

Cryptocurrencies do not have an emission center, i.e., a bank issuing it. As a rule, to fully define cryptocurrencies, many complex terms are required. These are references to encryption, cryptographic methods, and other technologies and theories. Below we have formed a more accurate definition of cryptocurrency, but with some technical terms.

In fact, cryptocurrency is a type of electronic currency that is based on cryptography methods. It works by blockchain technology. And the protection of coins and transactions occurs with the help of an electronic signature. The release of new digital coins may involve the computing power of computers located in different parts of the world. Cryptocurrency is not issued in any particular country. It is created in a virtual space without any reference to the state and locality. Cryptocurrency can be bought for regular money, like anything that has any value.

Why It is Needed

After learning what the crypto is, we can talk about why it is used. Digital coins today can be used to purchase goods over the Internet. Using cryptocurrency, money transfers to any country in the world is much easier and cheaper than using traditional methods. This is due to the lack of participation of banks and financial institutions in the transaction.

The transfer of cryptocurrency goes directly from one person to another. Therefore, the commission for conducting a transaction is much less and is divided between the participants of the system that support its performance, who are called miners.

Having received the transfer in the form of digital coins, they can be exchanged for dollars or other currencies. This is done through special exchanges. With their help, you can purchase or withdraw cryptocurrency.

So, cryptocurrency is needed because of the following main points:

  • It a real alternative to the American dollar;
  • It provides the ability to transfer funds around the world without resorting to the services of banks;
  • It provides a decentralization of the issue of money since digital coins do not have a single printing center.

Security

The basic principle of cryptocurrency operation is based on conducting transactions without the participation of banks or any other financial intermediaries. Cryptocurrency transfers from one user’s digital wallet to another, like a regular computer file. Since it has an encrypted form and an electronic signature of the owner, no one has the opportunity to steal it. Access to it will only be given to the person whose digital wallet was used.

Anonymity

The most important aspect of the cryptocurrency world is anonymity. The network records only the movement of coins between wallets. They are indicated by a set of randomly generated numeric and alphabetic characters. At the same time, information about the owners of these digital wallets does not appear anywhere.

Decentralization

The algorithm that provides a reliable way to store and secure the transfer of digital coins from one person to another is called Blockchain. In Blockchain, information about the issue and movement of each digital coin is stored. There are wallet addresses, transaction time, and the number of coins transferred.

It is important to understand that Blockchain is a decentralized system. Data is not stored on one server but on hundreds of thousands of computers around the world. At the same time, each person can download a complete archive of data onto a computer and become another link ensuring their safety and reliability. This way of storing information makes the system invulnerable to hacker attacks. It happens because any illegal change of information in one of the copies of the Blockchain will immediately make this copy unreliable because most other database instances will have different indicators.

How to Make Money on Cryptocurrency

Cryptocurrency is mined and created in the following ways:

  • One-time emission of all coins that go into circulation;
  • The issue of coins in several stages. This is determined by the policy of a particular cryptocurrency and is decided by its creators.
  • Mining. This is the most famous and popular method of mining coins available to ordinary users.

There are also many ways to buy cryptocurrency from other people through:

  • Exchange services
  • Cryptocurrency exchanges
  • Affiliate programs.

You can earn on cryptocurrency by selling it. For example, it is possible to do it by using the usual trading on the exchange. You can buy it cheaper and sell when the rate grows. You can also immediately sell coins mined, or wait for the price increase for mined digital gold.

What Supports Cryptocurrency

Many skeptics believe that buying cryptocurrency is like investing in a financial pyramid. These people reinforce their position with the argument that cryptocurrency is not provided with anything. However, this fact is one of its few similarities to ordinary paper money. Until 1971, the gold standard existed in the global financial system. It obliged countries to issue national currency only in the amount that is really backed by precious metal. With the abandonment of the gold standard, states were able to print an unlimited amount of money, which became the main reason for the annual increase in inflation.

Emission Limits as a Protection Against Inflation

The main advantage of digital coins is their limited issue. In particular, this is true for bitcoin. No more than 21 million Bitcoins can be issued. Limiting maximum emissions is a fundamental factor in the fact that digital coins are not subject to inflation. The devaluation of paper money in many countries is a problem that governments have not been able to handle for decades. But cryptocurrencies can solve this problem.

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