The concept of “ cryptocurrency ” has become firmly established not only in the financial sector, but also in the everyday life of many people, but not many people know what is hidden under this term, how digital coins work and what they are needed for.
Definition of cryptocurrency
There are several forms of money, and for example, fiat money (real currencies) is issued in the form of banknotes and coins, which can be either cash or non-cash (bank cards). In this case, the amount of funds owned by a person or organization is determined in the form of an entry in a banking document, including an electronic one, and when conducting financial transactions in non-cash form, these entries change.
Like real money, cryptocurrencies are also presented in electronic form, but unlike ordinary money, Bitcoin is an exclusively digital currency. In addition, cryptocurrencies are recognized as a conditional unit of account, since digital money is not officially recognized as a means of payment in most countries.
Records of the number of cryptocurrencies are stored not in one bank or financial institution, but in a distributed registry, or electronic file, which is reliably protected from hacking using cryptographic encryption technologies. The file with this information is duplicated many times, and it is stored in a chain of other similar files, which, in turn, is distributed among a large number of users connected to the same network (for example, the Bitcoin network). To gain access to this data, you must first hack the distributed registry on the computer of one of the users, but even if the attacker is able to do this, he will not be able to make changes to the information, since exactly the same data is stored on the computers of many other users. That is, to make changes to the specified registry, you need to carry out this operation on 51% of the computers participating in the network, which is physically impossible to do, since the number of network participants is in the millions.
How do crypto coins appear?
Anyone with the necessary knowledge in programming and cryptographic encryption can create a new cryptocurrency. To do this, you need to develop a special program that will generate the previously specified data register and will maintain it. Also, when creating a new cryptocurrency, you need to launch a service on which users’ electronic crypto-wallets will be stored.
At the next stage, developers need to carry out a marketing program to popularize their product. In this case, they often resort to giving away a small number of cryptocurrencies for free, and later the new coin is released through an ICO to one or more exchanges.
How many cryptocurrencies have been created?
It is difficult to calculate the number of cryptocurrencies, since this figure is constantly changing, but according to data for 2020, over two thousand digital coins have been created in the world. At the same time, some cryptocurrencies may eventually leave the market due to a lack of demand for them.
Are cryptocurrencies the same?
There are completely different types of crypto coins on the cryptocurrency market. There are currencies that are almost a complete copy of Bitcoin (that is, these cryptocurrencies support the same encryption methods and algorithms), but among the existing coins there are fundamentally different products.
The latter includes the Ethereum cryptocurrency , which was created to serve smart contracts. Essentially, a smart contract is an ordinary contract, the terms of which cannot be changed without reaching consensus. This agreement is considered closed if certain results are achieved.
But the Ripple cryptocurrency was created for completely different purposes, which included cooperation with banks and the creation of additional liquidity for making payments within and between banks.
Some cryptocurrencies are used today to make purchases. In particular, Litecoin coins are used for these purposes, transactions with which are carried out faster than with Bitcoin.
How to get cryptocurrency
There are several ways to receive cryptocurrency, and so-called faucets are popular online, as they are a free way to receive coins that are paid in small quantities for viewing advertisements.
Other sites are built like financial pyramids, or pseudo-mining. In this case, users are offered to invest a small amount of cryptocurrency and receive an increased amount in return, but such pseudo-mining sites pay only at the initial stage and there is always the possibility of losing all the invested funds.
A number of cryptocurrencies can be mined. To do this, you need to install a special program on your computer, which, using a video card, develops new digital coins by solving complex mathematical problems. Today it makes sense to use this mining option only for the newest cryptocurrencies.
Cryptocurrencies can also be purchased on cryptocurrency exchanges or purchased in online exchangers.
How to store cryptocurrency
To store coins, you need to choose a cryptocurrency wallet , which can be of different types.
Many users store cryptocurrency in an electronic wallet or on specialized services, and if cryptocurrencies are traded, they use exchanges. These methods are classified as “hot wallets” and are not the most secure for a number of different reasons, which include hacking.
A more reliable method is to install a hardware wallet on your computer. In this case, only the owner of the PC has access to the cryptocurrency, but it is worth considering that when installing a hardware wallet on the computer, the entire system is downloaded, that is, this program can take up several hundred gigabytes of free space.
There are also so-called “cold” wallets. In this case, the cryptocurrency is stored on an external source (on a flash drive). This method is considered the most reliable, since the likelihood of theft of digital coins is minimized and “cold” wallets are recommended to be used for storing large amounts, while it is more convenient to store small amounts of cryptocoins on online services.
How are crypto coins used?
The governments of some countries have allowed the use of cryptocurrency to pay for goods and services, and in Europe an analogue of a debit card has been created that supports digital coins. In this case, the user can top up the account with cryptocurrency, and upon purchase, the bank independently transfers it into real money at the current cryptocurrency rate .
In Russia, digital coins are not officially used when paying for goods and cryptocurrency is mainly used to make transactions on the Internet. In particular, digital coins have found application in investments in high-risk projects.
How to exchange cryptocurrency for real money
You can exchange cryptocurrency for real (fiat) money on specialized platforms or, more simply put, exchangers.
Multicurrency wallets are also used for exchange, but it is not always possible to withdraw money from such sources to a bank card.
Cryptocurrency exchanges are also used for exchange, but this option is inconvenient because you need to register a new account. However, with the help of the exchange, you can not only change cryptocurrency at a favorable rate and withdraw money to a card or electronic wallets, but also trade in cryptocurrencies.
See also:
How to buy cryptocurrency for rubles or dollars?
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