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What Is Cryptocurrency?

Published: 04/12/2017
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Up-to-date Blockchain and cryptocurrency news. Be the first to know!

What is it for?

Cryptocurrency is electronic money, they simply do not exist as cash(souvenir coins do not count). Such money is created by private computers, while the central banks of the countries do not participate in the process at all. To create digital "coins" special encryption algorithms are used. Officially cryptocurrencies are not used in any country in the world (although there are exceptions, but this is more the reaction to inevitable growth of cryptocoins popularity), but specialized exchanges actively hold auctions with bitcoins and other coins. Cryptocurrency or digital money appeared due to disappointment in ordinary paper money. Or just because some programmers had too much free time. The most popular type of cryptocurrency is bitcoin.

 

The value of ordinary money was established by the state, relying on the value of the material from which money is made. Not so long ago the value of the banknote was tied to a gold reserve, that is, behind each piece of paper there was real gold, which could be obtained without problems (theoretically). However, now the situation has changed: states issue money in unlimited quantities, so their value falls, and this affects the people, because prices are increasing.

 

What is cryptocurrency and how it was created?

 

Bitcoin was created in 2008 by a person or a group of people under a common pseudonym, who called themselves Satoshi Nakamoto. It was he who published the file, in which the protocol and the principle of the functioning of the new payment system were described. After several years, the development of the protocol was completed, and a code appeared. Thus there was a network Bitcoin, which is based on the technology of blockchain.

 

What is blockchain?

 

Blockchain, as it comes from its name, is a "chain of blocks". Each block is a set of data. In the chain, they line up because each block "knows" which blocks to go before and after. And the data in these blocks just describe everything that happens on the network. For example, when one user has sent bitcoins to another (that is, a transaction has occurred from one purse to another) - all this is recorded by the system in the nearest block. Thus, a transaction is a certain file that contains information like: "John gives X bitcoins to Jane". Each member of the network has a purse program in which all the data of the whole block is stored.

 

It turns out that in such a network nothing can be done "on the fly" - all moves are recorded, and all participants are aware of all the transactions that have occurred. However, your passport data is not there, and the user who made the transaction can be identified only by the number of the purse (which you can have as much as you wish). In general, the system somewhat reminds everyone of the known principle of the work of torrents. It also consists of a large number of peers, that is, equal participants in the transaction, and they, in turn, pass each other bitcoins. All operations are performed using a special purse program. In it you can see your address, to which the sender will send you coins or, for the sake of secrecy, generate a new one.

 

By the way, the blockchain itself is not a synonym for bitcoin, but technology, the principle of work in general. Many other currencies work this way. Moreover, this technology can be used to record resources, organize enterprises, conduct voting of shareholders or citizens, etc. However, developments in this area are still damp and difficult to understand, so wide application in the real world will have to wait.

 

So what is cryptocurrency? It is a completely new kind of money that has many differences from traditional ones:

 

Simple use. To create a purse of bitcoins, you need to spend about 5 minutes. To open an account in a bank, sometimes a whole day is not enough.

 

Decentralization. The system does not have a central control body, it is distributed to all participants. This means that every computer that produces bitcoins is a member of the system. No one dictates the rules to the owners of the bitcoins.

 

Anonymity. You can create and buy cryptocurrency without specifying your name, while the system is completely transparent.

 

The minimum commission. Commission in the bank sometimes simply amaze by its size, for international money transfer one can easily pay $ 50. For the purchase or exchange of cryptocurrency you will pay a penny (although the same bitcoin is not suitable for transfers of very small amounts, the network still takes a certain part).

 

Transparency. The system stores information on absolutely all transactions, and is called the history of operations (as you already know) - block. Any person can look at the address of the bitcoins how much is in your account. However, without a name, the information is still anonymous.

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