The data that gets on the Internet can be assigned and changed, but on the blockchain, fraud with wallets or payments is almost impossible.
The high level of security is due to the fact that the information in each block is encrypted, and the blocks are linked by a chain.
To hack the system, too much power is needed, since for the sake of one cell of information it will be necessary to change the cipher of all the others.
The system has other features that guarantee the safety of operations:
- unique addresses are used to transfer funds: for each operation, they are generated by the system itself;
- transactions are open and transparent, but it is impossible to link data to a specific person and his location;
- transactions are carried out instantly, they cannot be intercepted;
- the authenticity of addresses is verified by encryption keys.
There are public and private keys. The public key is the address of the user’s electronic wallet, it is in the public domain.
A private key is a cipher known only to the owner of the wallet. The keys work like this: one user wants to send a cryptocurrency to another and encrypts it with the public key, and the recipient uses the private key to open the “letter”.
What determines the price of a cryptocurrency
The price of a cryptocurrency is influenced by the supply and demand of network users. It does not depend on the state and national currency.
The more popular the cryptocurrency, the more users it attracts. This means that the number of transactions increases and its value grows. When there are fewer users, the price of the cryptocurrency falls.
For miners, the price is different: it consists of the cost of equipment and electricity costs.
Types of cryptocurrencies
These are cryptocurrencies that are mined. For example, Bitcoin, Ethereum, Zilliqa, Elastos, IOTA.
The issuance and circulation of such currencies is controlled by a closed group of people, who can also make decisions to block the accounts of the owners. At the same time, it is impossible to get electronic money using mining – they buy a pseudo-decentralized currency. Such cryptocurrencies include Bitcoin Cash, Ripple, TRON, EOS.
The cost of such a currency is tied to some value, less often to another cryptocurrency, so its price changes more often than other currencies. For example, Gemini Dollar is equal to the US dollar, and DigixDAO is equal to a gram of gold.
Stablecoins, the issue of which is backed by national money, are completely centralized. For example, the company Tether Limited issued the Tether cryptocurrency, which is backed by 20% of the reserves of US dollars from the organization’s accounts. And the Gemini Dollar is fully secured. It is overseen by the New York State Department of Financial Services.
The use of cryptocurrency is associated with risks due to the fact that it is not regulated by the state. Here are the problems miners and buyers of cryptocurrencies may face:
- instability and sharp fluctuations in the exchange rate;
- the prospect of depreciation of cryptocurrencies with unlimited emission, such as Ethereum;
- the ability to lose all coins if you lose the key to the wallet. You can’t go to the bank or the police.
In most countries, cryptocurrency cannot be officially exchanged for goods and services. This is due to the fact that its extraction and transfer is anonymous, which means that participants in the process can evade paying taxes.
It is accepted by some online stores, and it can also be traded, but its price directly depends on demand. If demand falls, the currency will depreciate and the owner may lose all the money invested in it.
What is important to remember
Cryptocurrency is virtual money that is usually not backed by physical assets. They are used only on the Internet.
Cryptocurrency is not controlled by the state and is protected from inflation.
Cryptocurrency is mined through mining. It is used for investment, trading, buying and selling goods.
Cryptocurrency is a digital currency that has no physical expression. Cryptocurrency can be mined using powerful computing technology – this process is called mining.
Digital money can be used in different ways: transfer from account to account, use it as a means of payment or store savings.