Cryptocurrency is a digital currency, as well as a payment system protected by special data encryption methods. A unit of cryptocurrency is a code that is created as a result of complex computer mathematical calculations. Cryptocurrency is considered an alternative to fiat (paper) money issued by the government.
So where does cryptocurrency come from and what is its advantage?
Cryptocurrencies are based on blockchain technology – a decentralized system for recording and documenting transactions that occur in blocks. The blocks and the content inside them are protected by cryptography, which ensures that previous transactions on the network cannot be tampered with or destroyed. This is due to the fact that all information is stored on millions of computers of independent network participants.
Network participants who, through powerful equipment and special programs, perform calculations in blocks are called miners. When cryptocurrency transactions reach the miner’s equipment, the hash (key) calculation for the block in which they are recorded begins. After the equipment has found the perfect key in all respects, it goes to be checked by other miners, who must confirm its uniqueness. For a confirmed calculation, the system issues new crypto coins into circulation and the miner receives a reward. This is the principle of mining – to carry out transactions of crypto coins, through which new crypto coins are issued, and these coins are rewarded to miners for the work of their computing power. Miners also receive a reward in the form of transaction fees.
What is the advantage of this approach?
- Versatility. A savings wallet can be created on any computer, smartphone, tablet.
- Anonymity. No one knows the owner of the wallet and no need to ask someone for permission to use the cryptocurrency.
- There is no single control center. Everyone on the network is equal, which means that it is impossible to block a wallet or cancel transactions.
- Transactions are protected by a cryptographic method. When making a transaction, a special key is generated in the block, which must be confirmed by other network participants and if this is done, no one will be able to cancel the transfer, and this is protection against fraud when paying for goods or services.
- It cannot be faked, because the information is stored on millions of computers of network participants.
The popularity of cryptocurrencies is growing and, accordingly, their number is growing, because the blockchain technology used in the generation of cryptocurrency coins allows you to create an unlimited number of types of digital money.
There are several types of cryptocurrencies:
Bitcoin (BTC) is the very first cryptocurrency. And the term “cryptocurrency” itself began to be used after the emergence of the “Bitcoin” payment system, which was developed in 2008 by a person or a group of people under the pseudonym Satoshi Nakamoto. And the term “cryptocurrency” became widespread in 2011, starting with the publication in Forbes magazine. Since then, the name has been applied to digital coins.
Bitcoin and its open-source gave birth to other cryptocurrencies. These coins have been called altcoins as an alternative to bitcoin.
Some examples of altcoins that have a large market cap:
- Litecoin (LTC) – created in 2011. It is known for generating new blocks at a fast pace, which speeds up transactions.
- Ethereum (ETH) is one of the most popular altcoins and the second largest cryptocurrency by capitalization, which was created in the Ethereum blockchain in 2013 by a group of developers together with Vitaly Buterenim.
- Ripple (XRP) launched in 2012. Ripple is more of a network whose main goal is to make immediate payments with minimal fees around the world. It is this ability that has made it especially relevant for banks wishing to settle international transactions. Ripple does not require mining, unlike bitcoins, and therefore uses less processing power than some other altcoins.
These are just some of the altcoins, there are others, new ones are often created.
Unlike bitcoins and altcoins, they cannot exist independently, but depend on the network of another cryptocurrency. Tokens are built on top of the blockchain and do not have their own blockchain.
- Ethereum. The Ethereum platform currently has the most tokens installed.
- Omni – Tether (USDT). Each block is supported by US dollars, at a rate of 1 to 1. It is especially interesting for services that cannot accept USD.
- NEO is often referred to as the Chinese rival of Ethereum as a platform for smart contracts – and DApps.
- TRON has many deployed tokens including BitTorrent Token (BTT) that can be used to speed up downloads over BitTorrent file-sharing protocol.
Cryptocurrencies are known for their volatility, but there are also stable cryptocurrencies – stablecoins, like USDT, BUSD, USDC, DAI, the price of which does not change and is always equal to 1 US dollar.
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