What is Crypto?
Cryptocurrencies are digital tokens that use cryptography for their creation and security. Bitcoin was the first, but thousands more came.
Thousands of new cryptocurrencies have appeared over the past few years, and they all claimed to offer something different. Bitcoin was the first, and its value is known to have risen to about $20,000 at the end of 2017 and then dropped by more than 60% in early 2018. It took Bitcoin three years to return to its previous high, and then, at the end of 2020, it doubled in less than a month. In 2021, large companies are buying stocks, and well-known skeptics from Wall Street are changing their tune.
Crypto becomes impossible to ignore.
But let's zoom out. What are cryptocurrencies, how do they work, and why have they, excited people? And now you can find out about it here.
What is cryptocurrency?
Cryptocurrency is a digital token. It uses cryptography (hence the abbreviated name "crypto") to regulate how tokens are created, how they are traded, and how secure they are. And (which is the main thing for many) he does not use and does not need a central bank or government to control or manage them.
Bitcoin was the first cryptocurrency created by a person (or people) under the pseudonym Satoshi Nakamoto, first described in October 2008 in an official document calling the concept a "peer-to-peer electronic money system." The Bitcoin blockchain, the network in which Bitcoin operates, was launched in January 2009 (there are currently many other blockchains).
The essence of cryptocurrency
Digital aspect: cryptocurrencies are fully embedded on the Internet. You can't physically touch them or hold them. (Yes, these illustrations of bitcoins as physical gold coins with the letter B can be misleading).
Decentralized aspect: All cryptocurrency transactions are stored in a public, global list or registry. This means that records are held simultaneously in many different places (nodes).
Peer-to-peer communication: the exchange of cryptocurrencies between the parties is carried out electronically without a single central party or intermediary required to approve the transaction.
How are cryptocurrencies created?
Most cryptocurrencies (but not all) generate new units or coins during the mining process. This is where individuals or groups (miners) use expensive computers that compete in solving complex cryptographic puzzles to check bundles of transactional records (blocks) in the registry.
Miners are rewarded for their efforts, thanks to which new coins are created. In the Bitcoin blockchain, the mining reward is halved every four years as a measure to slow down the creation of new bitcoins.
How are cryptocurrencies used?
Nowadays, there is a debate about whether cryptocurrencies behave like a currency or are more viewed as commodities. (Some people say they should be called "digital assets" rather than cryptocurrencies.) But cryptocurrencies were created not only to be an alternative to your dollars and pounds. They can be used for a variety of purposes. Here are just three examples of those who followed Bitcoin.
1. Litecoin - Litecoin blockchain was created in 2011 as a fork (code setup) of the Bitcoin blockchain; its creator Charlie Lee conceived of making it silver to Bitcoin gold. Its token is LTC.
2. Ethereum is the Ethereum blockchain, launched in 2015 and specially designed to operate decentralized applications (Dapps) and smart contracts in its network. Its token is ether or ETH.
3. Filecoin - The Filecoin network, launched in 2020, allows people to rent storage space on a computer, such as Dropbox, for a decentralized network. Its token is FIL.
Bitcoin was invented as a form of digital money, but cryptocurrencies have become more sophisticated since then.
Why are there so many cryptocurrencies?
Bitcoin was the first cryptocurrency and solved some critical problems of creating digital money. But not without drawbacks. As a result, developers, entrepreneurs, and programmers have been busy building cryptocurrencies that serve many different needs and solve various problems.
What is the attractiveness of cryptocurrencies compared to currencies issued by the state?
They are semi-anonymous. Cryptocurrencies can be designed so that no one can see who you are or what you spend your cryptocurrency on, although transactions associated with the wallet address are available for public viewing.
The government does not control them. People in unstable countries where currencies are unstable can use cryptocurrencies as an alternative way to purchase goods and services.
They are limitless. Just like on the Internet, cryptocurrencies can go anywhere.
They are more secure. Distributed registries are difficult to crack because they do not have a single centralized side.
Deals are cheaper and faster. While cryptocurrency exchanges charge you a commission for buying, selling, or transferring your cryptocurrency, the fees are usually much lower than the costs of moving money across the border in the real world, and transactions are verified much faster.
They can be used to fulfill contracts. Cryptocurrencies are used not only as a form of money. They can store agreements between people and can execute these contracts automatically.
Future. We are still at the beginning of the cryptocurrency era. Many coins will come and go, and some of them will become incredibly valuable, while others may drop to zero.
But cryptocurrencies in general, technologies, and the industry around them will not go anywhere.