Cryptocurrency is digital money, i.e. digital form of cash. It can be used to pay in a restaurant, buy clothes, book a vacation and so on. You would ask how it is different from common online payments with your bank card (either credit or debit) or services like PayPal. It serves the same function, but at the same time it’s very different (and for the same reason it is different from digital currencies, issued by national governments or banks). The main difference is that there is no third responsible organization, capable of safety and the whole process. There is decentralization in the base of it.
The word “cryptocurrency” itself derives from two words: currency, meaning money, and cryptography, meaning sophisticated math principles used to secure transactions.
Decentralization as the base of cryptocurrency.
Decentralization means that no intermediaries are needed in transactions between the participants of a cryptocurrency network. How is this possible? When using any banking service, the users communicate through a central service, which verifies all the information and allows transactions. When using cryptocurrency, participants are considered separate nodes that communicate directly with each other. Each participant keeps their own copy of a database, each node works as their own server. A node can go offline, but the users will be able to get information from the other participants. It is similar to how torrent -trackers work. Inner or outer administration of the system is generally impossible. Thanks to this, cryptocurrency services are available twenty-four hours a day, 365 days a year – no days-off, public holidays or vacations.
If you want to cripple the functioning of any bank, you just need to find the central server and disable it. If there are no back-ups, the balance-sheets of users will be lost. Thanks to decentralization this is not possible in cryptocurrency networks.
Some other basic principles of cryptocurrency: blockchain, pseudonymity, public-key cryptography, digital signature, cryptocurrency wallet.
The majority of cryptocurrencies are based on blockchain technology. Blockchain is, simply put, a special type of database.
In cryptocurrencies there is no forced return of payments, because there is no administration, funds can’t be forcibly frozen or withdrawn without access to the private key of the owner. However, there is the possibility of concluding agreements with the mediator, when the completion or cancellation of the agreement requires the consent of all three or any two parties. The parties to the agreement may temporarily block each other’s funds as collateral, if they both agree on this.
All cryptocurrencies are used pseudonymously – the content of transactions is open, not encrypted, but they contain only information about account numbers and no information about the owners of these accounts.
In the base of cryptocurrency networks lies public-key cryptography. The users rely on it to send and receive funds. The user owns a private key, which is huge and almost impossible to guess, and a public key, which can be safely transferred to anyone. From your private key you can create a digital signature, the validity of which is checked by comparing it with your public key. Private keys are kept in cryptocurrency wallets, which can be of different types: hardware, software, or even a sheet of paper.
From the history of cryptocurrency.
The first one of cryptocurrencies was Bitcoin, which was released in 2009 by someone under the nickname Satoshi Nakamoto. We still don’t know the true identity of the first cryptocurrency founder.
Later, other Bitcoin-independent cryptocurrencies called Bitcoin forks appeared. They included Namecoin, Litecoin, PPCoin, Novacoin, and many others, which were the same as or very similar to Bitcoin and never became popular.
In 2018, the Australian city of Agnes Waters became the first city in the world to allow cryptocurrency payments.
In the first half of 2018, hackers stole cryptocurrencies worth $ 1 billion. Which proves that even with all the safety measures you cannot feel completely safe with your cryptocurrency funds (as well as with the traditional bank accounts as well).
There are at least 20 cryptocurrencies used to gamble, in particular in blockchain casinos. Daily trading in such currencies exceeds $ 3 million per day.
The short review of different cryptocurrencies.
Until July 2013, the software of all cryptocurrencies, except XRP (Ripple), was based on Bitcoin system code. Then independently developed platforms that have additional features began to appear. They include Bitshares, Mastercoin, Nxt.
The leaders of cryptocurrencies change almost every month, but the permanent residents of the top 10 are Bitcoin, Ethereum, Ripple and NEM.
Acquisition and exchange of cryptocurrency.
There are various ways to obtain cryptocurrencies online. They include mining, forging and ICO. Mining and forging are aimed at building a blockchain: the creators of new blocks are rewarded with a certain amount of issued cryptocurrency and there is usually no other way to put it into circulation. ICO is a way to attract funding through the sale of new cryptocurrency batches, which were originally generated and received by the ICO organizer.
You may be interested, how an ordinary user of the internet can obtain a certain amount of cryptocurrency. Well, after the initial distribution of the new issue, others can receive cryptocurrency from those who already own it – in exchange for ordinary money, for goods or services, as donations or as a loan. The exchange can take place directly between the users without intermediaries or through any of the many digital currency exchange sites.
If someone wants to spend their cryptocurrency, you can find a list of places that accept it on the Internet.
It’s interesting that anyone can participate in the development of cryptocurrencies.
The legal aspect of cryptocurrency.
There are some countries that ban cryptocurrencies, but in most of the world it is legal to buy, sell and store cryptocurrency. Make sure to check the local legislation before doing any transactions with cryptocurrency, as various countries consider and regulate the cryptocurrency market differently.
