Everything about cryptocurrency from “A” to “Z”

Everything about cryptocurrency from “A” to “Z”
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In the 21st century, new opportunities and financial instruments appear daily, bringing economic relations to a qualitatively new level.

A vivid example of this is cryptocurrency and related concepts, which have already been appreciated by both large business representatives and ordinary Internet users.

What is a cryptocurrency?

Cryptocurrency is a digital currency, its unit is coins. They are protected from the possibility of forgery, representing encrypted information that is not available for copying, thanks to the use of cryptography.

Do not confuse the concepts of “electronic money” and “cryptocurrency”, because:

  • Electronic money can appear on the account in any of the modern systems only after they are deposited into the account in their real, physical embodiment, for example, through a cash desk or payment terminals, so the electronic form is only one of the forms.
  • Cryptocurrency, on the other hand, is issued immediately on the Web, and it is in no way associated with conventional currencies or the state system.
Cryptocurrency: basic principles and features
Cryptocurrency: basic principles and features

Anyone can start earning cryptocurrency with special software and equipment. It is the computing power that will be responsible for solving ever more complicated algorithms, mining a coin, or, to be more precise, encrypted information. What acts as proof of the presence of a coin on the Web? Blockchain is a kind of account, which will be discussed below. The currency is stored in a decentralized manner on users’ crypto wallets.

Cryptocurrency advantages

  1. Since the code of the algorithm is open, it can be mined by anyone who wants to.
  2. All transactions are anonymous, that is, there is no information about the owner of the crypto wallet!
  3. Cryptocurrency has a decentralized nature – there is no single bank, there is no any control over payments and transactions.
  4. Cryptocurrency is not subject to such a process as inflation, since only a limited number of coins can be issued.
  5. High level of protection – the currency cannot be copied.
  6. Minimum commissions.
cryptocurrency
Picture: indiatimes.com

Among the most famous cryptocurrencies on the modern market, it is worth highlighting:

  • Bitcoin
  • Litecoin
  • Ethereum
  • Dash
  • Satoshi
  • Primecoin
  • And many other altcoins.

Cryptocurrency structure by points

Any cryptocurrency has its own structure, which demonstrates the difference from everything that was before.

  1. Cryptocurrency does not have a single internal or external administrator, that is, the system is 100% self-organizing and independent.
  2. There is also no central server. This is a decentralized system, and the database is not stored in one place, as each member of the system has copies of it, which are regularly checked against each other.
  3. Any payment is encrypted using a secret key available only to the owner of the funds. Each participant has their own special address (wallet) and key (i.e. password).
  4. A new block is added to the system consistently in distributed databases, along with information regarding all transactions.

Mining and miners

All cryptosystems, working with information, use computer power, and they are simply huge, so a logical question arises – where to get them, which contributed to the emergence of such a term as mining (cryptocurrency mining).

Cryptocurrency mining farm: how it works and how to assemble it yourself
Cryptocurrency mining farm: how it works and how to assemble it yourself

What it is? Mining coins through resource-intensive calculations. This is a task available to many users who give part of the power of their computer to solve those tasks related to earning cryptocurrency. There are several ways to make money on mining:

  • Via a PC – special software is downloaded, which allows you to direct part of the power to the process of calculating cryptocurrencies. No investment is needed here, however, you can earn a little in this way.
  • You can mine through special equipment (special-purpose integrated circuit), creating a “farm” that is actively working and brings a stable income. Popularly, it is better known as asics (ASIC) – an integrated circuit for special purposes, that is, such a circuit that is focused on solving one specific task, in our case, this is the earnings of cryptocurrency, for example, Bitcoins. In this case, gently take care of acquiring high-quality and powerful equipment, since further earnings on an industrial scale will directly depend on this. The farm is a set of computers that are able to perform at the proper level of calculations, working around the clock without lunch breaks. To effectively mine cryptocurrency, you will need appropriate powerful video cards, power supplies. The formation of a farm is always a significant cost that is directly related to the purchase of equipment, payment for electricity.
  • Miners often decide to rent such power. This is “cloud mining”. This model is characterized by the use of cloud services, as the name suggests. Groups of miners gather in certain structures, and their priority goal is to get good profits, which are much higher than with individual mining. The scheme is as follows – the company acquires modern and powerful equipment, sets it up and leases it to the miners, and takes care of all questions regarding the service, payment of utility bills and other aspects.
  • If you do not want to invest large amounts, and stable and small profits are a priority, you can consider joining pools. This is a node that integrates a certain number of miners (all of them have different computing power). All participants have one goal – to find the correct block. For the first correct block, the reward will be received by the pool that distributes the profit between the participants, taking into account the contribution of each and them, pursuing the principle of fairness.
cryptocurrency
Picture: npr.org
It is interesting that the term “mining” itself is translated from English as “mining”, but neither a pick nor a shovel will be useful here, since it is enough to have a powerful computing system on hand to she helped the process of writing a block of transactions to the blockchain.

The world’s first cryptocurrency – Bitcoin

The very first cryptocurrency in the world, which is still the most famous to this day, is Bitcoin. The first mention of it appeared in 2008. Its founder was a certain person who preferred to remain incognito and spoke to the public under a pseudonym. Today, the exchange rate of this currency is quite high, which attracts the attention of a large number of people. However, the number of units that can be mined, according to experts, is limited.

Bitcoin – the currency of the future?
Bitcoin – the currency of the future?

According to forecasts, in a few decades the last possible Bitcoin will be mined. Yes, and it becomes more difficult to mine every year, which is associated with the desire to keep its value. Let’s learn more about its extraction, storage and use.

Mining

One of the main ways to acquire bitcoin is to mine it yourself. This process is carried out using a computer and a special program. But not every computer is suitable for this, but only one that has a powerful video card. Some miners prefer to purchase several video cards connected to each other for faster currency mining. However, the cost of such ligaments is quite high, but the period for which these costs will pay off is several years. Another disadvantage of independent mining is that it requires a large amount of electricity.

Since mining is an unattainable option for many, bitcoin can simply be purchased on exchanges, in exchangers, or from a specific owner.

Storage

As with any currency, you need a wallet to store bitcoin. There are plenty of such wallets on the network. All of them are different in functionality and appearance. It is better to choose the most famous ones, because they are more secure and secure. The data for entering the wallet (login, password) should not be simple, it is preferable to make them more intricate, so that it is not so easy for fraudsters to hack the wallet. At the same time, you must write them down for yourself so as not to forget or lose, otherwise, in which case you will not be able to restore the data and contents of the wallet.

Who Invented Bitcoin?
Who Invented Bitcoin?

You should not store all the currency in one wallet, in order to keep them safe. The best and safest option is to create a wallet on your computer and store funds there. But, unfortunately, such wallets have a large database and require constant updating. A prerequisite in this case is the presence of an anti-virus program on the computer. It’s best to always back up your wallet whenever possible.

Usage

  1. In those countries where cryptocurrency is a legal unit, it can be used to pay for any goods or services.
  2. In addition, it can be withdrawn to the card, i.e. exchanged for regular money or sold on the same exchanges or exchange offices at a higher rate and receive the difference in the form of profit.

Bitcoin Discovery Satoshi Nakamoto.Bitcoin development in dates

Satoshi Nakamoto
Satoshi Nakamoto

As an independent currency and payment system, Bitcoin appeared in 2009, when a set of data in the virtual space began to be activated among serious businessmen and investors, and not just among ordinary enthusiastic users.

  • In the summer of 2016, geeks at the information portal Slashdo noticed that a strange article was hanging on their file hosting service, which had not been there before. It turned out to be the work of the then unknown Satoshi Nakamoto. It collected all the detailed information about what Bitcoin is and what advantages it has over classic fiat money. At the end of the article, a source code file was attached. So its author showed that the bitcoin system is absolutely transparent and the authors will not patent the invention. With the creation of Bitcoin and the beginning of its popularization, the race of cryptocurrencies started in full swing in the world, which appeared as a result of the open publication of pieces of code on the network.
  • In less than a month, at the end of the summer, they tried to hack the still poorly optimized network, stealing some of their collected coins from the wallets of some large cryptocurrency holders. Fortunately for them, the developers were able to restore the network, while eliminating malicious files from the computers of members of the cryptocurrency support team.
  • In the fall of 2010, there was a surge in the activity of miners and investors in the network, due to which the capitalization of the coin reaches a level equal to one million dollars. Now it is hard to believe that just seven years ago, the most expensive currency unit had a total capital of just over one million dollars. At the same time, one coin cost about half a dollar per piece.
  • In March 2011, the very first virtual currency exchange appeared on the network. Officially, with the support of the creator of bitcoin, this currency could only be bought and sold on MtGox and nowhere else. Unfortunately, for a number of reasons, the MtGox resource ceased to function in 2014. After it, several more large and reliable cryptocurrency exchanges appeared, such as EXMO and LIVE COIN.
  • In October 2011, the news appeared on the net that the very first fork was created based on the source code. It was called “Litecoin” and claimed to be the second largest coin in the market by capitalization, but in 2015 it was replaced by Ethereum.

What is Blockchain?

It is impossible to talk about cryptocurrency and not touch on such a topic as blockchain (from the English word “blockchain” – “a chain of blocks”). In fact, any block is a set of data, zeros and ones. All of them line up in a chain, since any of the blocks “knows” which blocks go before or after it. All the data inside them is designed to describe everything that happens on the Web. When a transaction is carried out, all information is recorded in the nearest blocks, a file containing the information is generated, and the data is available to all users of the system.

Blockchain – a digital chain of information blocks
Blockchain – a digital chain of information blocks

In simple terms, it is impossible to do something “secretly” in such a network, since each move is recorded, any participant has access to information regarding past transactions. However, anonymity is maintained, so users can only be identified by their crypto wallet number. You can compare the functioning of the blockchain with the work of torrent trackers:

  1. The system also consists of many equal participants.
  2. They transfer funds among themselves.
  3. All operations are performed inside a special system.
cryptocurrency
Picture: esri.com

Blockchain technology can be expressed to understand the essence in the following sequence of operations:

  1. User X wants to transfer money to user Y.
  2. The transaction is sent to the network, after which a new block is collected.
  3. Immediately, the blocks are sent to each of the participants in the system so that the verification passes.
  4. Everyone registers blocks in their version of the database.
  5. At the next stage, the block falls into its place in the chain.
Token – a unit of account that is not a cryptocurrency
Token – a unit of account that is not a cryptocurrency

Many people think that blockchain and Bitcoin are one and the same. This is not true! Blockchain is a technology, and not only Bitcoin, but also many other cryptocurrencies run on it. Most importantly, it is actively used by various areas to solve important problems:

  • Accounting
  • Enterprise organization
  • Contracting
  • Voting and so on

Every day there are more and more new developments in this area, so we can already talk about widespread use around the world.

What is a cryptocurrency FORK?

Speaking of cryptocurrency, one cannot help but recall such a concept as a fork. It is due to the fact that Bitcoin is open source software, so everyone has the opportunity to duplicate, change and further use it for their own purposes, and this modification of the code is a fork, which in English means “fork “! Thus, a fork is a change in the rules by which a block in the chain will be recognized as valid.

Cryptocurrency halving – feel free to divide by 2
Cryptocurrency halving – feel free to divide by 2

In the cryptocurrency segment, a fork is a change in the existing rules of operation, which is directly related to the need to transform the protocol. Practice shows that once, in order to form a bitcoin, it was necessary to resort to a fork, sometimes it’s just a matter of security and efficiency of the system.

Today there are 2 types of forks: soft (soft modification) and hard (hard modification):

  • Soft forks – in this case, when changing the rules, no software update is required to start executing the new rules. If the code does not accept them, then the nodes can still interact with those nodes that already use the new rules. That is, a soft fork is a reversible change in the code that does not upset the balance in the protocol.
  • Hard forks is a slightly different situation. Here, the new rules strongly contradict the old ones, so the nodes that did not accept them are not able to receive information from the nodes that accepted them. A hard fork is a transformation of the balance mechanism, so the network will be divided into 2 parts, and they will not be able to contact each other in the future, since the blocks that are recognized as valid in one of them will never be so in the other.

Forks differ from each other in encryption algorithms.

Attitude towards cryptocurrency today and tomorrow

It cannot be said that the attitude towards cryptocurrency today is unambiguous. From a legal point of view, its use is practically not regulated, although technologies such as, say, blockchain have long been recognized even at the state level.

Ethereum cryptocurrency is a great alternative to bitcoin
Ethereum cryptocurrency is a great alternative to bitcoin

It can be said with confidence that today the authors of numerous projects are actively developing projects that can be applied in any service sector, in the economy, the banking environment, medicine, and jurisprudence. All of them integrate only the strong qualities of the blockchain:

  • Transparency
  • Decentralization
  • Maximum Security

Most obviously, these technologies will become part of interbank transfers, cloud services, software, logistics systems… This list can be continued for a long time, since the future of cryptocurrency and everything connected with it is huge.