There are about a thousand cryptocurrencies (that is, digital currencies that function thanks to the mechanism of asymmetric encryption) in the world, but the most famous is bitcoin
What is a cryptocurrency
Cryptocurrency is a means of payment that exists only on the Internet. It has no paper expression, and its value does not depend on the state.
Usually, to transfer money from one person to another, you need an intermediary – a bank. With cryptocurrency it is different: the bank does not participate in the exchange.
Cryptocurrency is built on the blockchain system – a chain of information blocks. They are used to transfer digital money from person to person without an intermediary.
In 2009, the first digital coin appeared – bitcoin, since then the number of cryptocurrencies has been growing.We tell you how the cryptocurrency works, what determines its price, how to get and use it.
What is blockchain
Blockchain is a way of storing information over a chain. Records of transactions of network participants are encoded, distributed among other participants and form interconnected blocks.
If someone tries to make changes to get the currency in a dishonest way, such as rewriting an existing transaction or creating a new one without the consent of other participants, the system will compare this information with other databases and block the transaction.It’s like a bank branch on your computer.
To be able to conduct transactions, you need to keep the network in working order – this is done by the miners. They donate their computing power to the system to produce new blocks and coins, and receive a percentage of the transactions.
The creator of the blockchain determines how many resources the miner must provide in order to receive a reward. All participants in the issue of cryptocurrency are endowed with equal rights and opportunities.
The developers put in the system a limit on the emission of cryptocurrency – for example, only 21 million bitcoins can be produced.
Digital currency is divided into coins and tokens.
This is the monetary unit of the cryptocurrency, which operates in its own blockchain. It can be obtained through mining – providing the system with the computing power of your computer.
Coins can be transferred to other users of the blockchain system and sold for regular currency. Some companies accept them as payment for goods and services.
For example, Microsoft sells the Windows operating system and the Xbox game console for bitcoins.There are coins that run on a rewritten bitcoin blockchain. They are called altcoins – alternative versions of bitcoin.
This cryptocurrency monetary unit is created on the basis of an already existing blockchain. They cannot be obtained, but can be bought or received for activity.
Tokens, even in theory, cannot be paid, they are used to give the user access to the functions of the platform. If a coin is a bill, then a token is a ticket. But if you bring the token to the exchange, it can be exchanged for regular money at the current rate.
Tokens can be used as a tool for investment and evidence of the right to business, they can be used to participate in voting or polls.
Tokens have more possibilities, but coins are more valuable among investors: they are more difficult to create.
How to get cryptocurrency
To store coins or tokens, you need an electronic wallet. There are several ways to fill your wallet with cryptocurrencies.
Creation of a new block of the network, for which a reward is charged. To do this, you need to provide the system with your computing power.
If at the beginning of the emergence of cryptocurrencies it was possible to mine from a regular PC, now the network level has become more complicated. Special devices appeared – mining farms. Individual users combine the power of their computers and create associations of miners.
If the income in mining depends on the power of the equipment, then in staking it depends on the number of existing cryptocurrency coins. This is a kind of investment: the owner sends coins to maintain the blockchain and receives a reward for this.
Cryptocurrency can be bought. To do this, there are exchangers where those who wish can sell and buy digital coins for another cryptocurrency or for the national currency. For the exchange you need to pay a commission.
A commission-free alternative is p2p exchangers that allow you to transfer money from person to person, without intermediaries. To use them, verification is required – disclosure of your passport data.
Trading. Crypto trading is similar to regular trading. It is based on the principle of “buy low and sell high”. The high volatility of the price of cryptocurrencies allows you to make quick deals. Trading is carried out on trading floors.
Tokens can be bought on the exchange, in an online exchanger, or directly from a company that offers a portion of the profits from some project for the purchase of a token. They are purchased both for ordinary money and for cryptocurrency.
How cryptocurrency is used
Investments. Cryptocurrency attracts investors with high profitability of deposits.
Speculation. Prices in the cryptocurrency market are an easy subject of speculation. Volatility in the value of electronic money creates a difference in exchange rates. This difference is used by traders and crypto brokers.
Speculation dramatically affects the price of cryptocurrencies. So, Elon Musk’s announcement of the sale of crypto assets reduced the cost of bitcoin by almost $10,000 overnight.