The cryptocurrency phenomenon

The word "cryptocurrency" is popping up in news titles around the world more and more frequently, and there is a reason for that. Cryptocurrency is an unprecedented modern phenomenon that can be perceived differently. Most likely, there are people who still have not heard about cryptocurrency, some people just don't care, others read some wiki article on cryptocurrency and it is as far as it goes for them, but for some people, cryptocurrency is just as normal as fiat money. However, it doesn't stop there: most cryptocurrency users use it rarely and not particularly actively, but there are real "cryptocurrency heads" that build so-called "cryptocurrency farms" which they use to make a living for themselves.

What is cryptocurrency?

Cryptocurrency is a virtual asset, one cryptocurrency unit is a coin. A coin is a speck of encrypted information that can't be copied or forged. Information about coins is stored in a shared database, spread across computers connected to the network. Cryptography is used not to restrict access to transaction data, but to ensure the integrity of the blockchain's transaction database.

At first glance, it might seem that cryptocurrency is just another electronic payment system, but it is not the case. Cryptocurrency is built on the P2P architecture and has no centralized issuing or mapping authority, which makes it a bank in a sense. All transactions within the network are carried out by means of distributed networking.

As it was previously said, the beauty of cryptocurrency is the lack of any internal or external regulator. Therefore, banks, tax collectors, courts and other government and private organizations can't influence crypto transactions. Hence, nobody can cancel, block, appeal or force a transaction without access to the owner's private key.

The history of cryptocurrency

For payments, cryptography was first used by payment system DigiCash in 1990. But this system was centralized and it went bankrupt in 1998.

The term "cryptocurrency" was invented by someone named Satoshi Nakamoto, the creator (or creators) of the first cryptocurrency, Bitcoin, in 2009. In the very beginning, the cryptocurrency was known in a small circle of computer enthusiasts and IT specialists. Bitcoin mining was almost non-existent, while bitcoin promotion wasn't going anywhere either. At that time, nobody knew what cryptocurrency really was or what to do with it, which is why the bitcoin price was around 10 cents per coin. But in 2010, everything drastically changed: one trading platform introduced the option of exchanging bitcoins for real money. In the meantime, people who needed anonymity started taking interest in the anonymity of bitcoin transactions. Traders found bitcoin interesting too, they caused it to rise in popularity worldwide. This excessive attention to bitcoin lead to price growth: the price of bitcoin skyrocketed to 1110$ in 2013. At the moment of writing this article (September 19, 2016) it's priced at 626$.

Around that time, new bitcoin-based cryptocurrencies started to appear. Such cryptocurrencies are called "forks of bitcoin", for example, Namecoin, Litecoin, Peercoin, Novacoin, and many others.

All cryptocurrencies (except for Ripple) born before July 2013 used bitcoin's source code as the foundation. After that, fully independent platforms started to appear. They introduced their own innovations and infrastructures, for example, VertCoin, BitShares, Mastercoin and others.

Today, there are hundreds of cryptocurrencies in existence with new ones popping up quite frequently.

What is cryptocurrency for?

Cryptocurrency was designed as a universal means of online settlement. Since cryptocurrency is decentralized, it is not affected by fiat currency fluctuations.

More and more merchants are starting to accept cryptocurrencies, first of all, bitcoin, as a method of payment for goods and services, just like bank cards and electronic payment system money. There are even cryptocurrency ATMs. Bitcoins are accepted by CheapAir, the University of Cyrus, and some London pubs. Thus, we can surely say that cryptocurrency is used for all kinds of payments, just like fiat money.

One can even make money off of cryptocurrency. The thing is that all cryptocurrencies are volatile, their values can soar and drop numerous times during the day, and you can make some money if you buy and sell cryptocurrencies at the right time.

One can make long-term investments in cryptocurrencies by purchasing a large amount of some newcomer but promising cryptocurrency and wait for its value to soar, just like it happened in the bitcoin story.

How does cryptocurrency work?

No one is going to have any doubts about the fact that a cryptocurrency is an extremely complex system, every single part of which is a complex system in and of itself. Since bitcoin is the first cryptocurrency ever, let's take a closer look at it.

1) Blockchain. It is a publicly accessible collective registry, that the entire bitcoin system is based upon. All confirmed transactions are recorded in the blockchain. This data determines an account's standing and shows whether it is actively used or not. The integrity and chronological order of the blockchain are cryptographically protected.

2) Transaction. It is the act when coins move from one account to another. Transaction data becomes part of the blockchain. Bitcoin wallets contain confidential information, called "secret key" that is used as a digital signature. Secret keys act as a mathematical proof that a transaction is indeed confirmed by the wallet's owner and prevent further changes to the transaction after it has been submitted to the network.

3) Mining. It is a process as the result of which transactions are recorded in the blockchain. Mining sustains the chronological order of transactions in the blockchain, the neutrality and stability of the network. In order for transactions to be confirmed, they have to be fused into a block that meets the cryptographic requirements and is checked by the network. This is why the previous block can't be altered because in such a case all previous blocks would be invalidated.

Advantages and disadvantages of cryptocurrencies

1) Complete anonymity. It is both an advantage, since crypto transactions are impossible to track or block, and a disadvantage, because when dealing with dishonest people, getting rightful funds might be next to impossible. 

2) No central authority. No manipulations or price tampering at the hands of governments and central banks.

3) Cryptocurrency can't be stolen. Without access to the special file which is generated during the first wallet initialization, and the password, it is impossible to carry out transactions. On the other hand, it is a disatvange because without the file it is impossible to recover access to your account.

4) Another disadvantage is cryptocurrency's legal status. In some countries cryptocurrency is outlawed and those you use it are prosecuted. 

Where can I get some cryptocurrency?

1) Buy on a cryptocurrency exchange. If you study the trends in the crypto market, you'll be able to predict them and make money knowing when to act.

2) Win in a lottery. Websites carry out contests and lotteries with cryptocurrency denominated rewards. But one should be cautions since it could be criminals seeking to gain access to private data. 

3) Mine it. It is not easy. In order to mine cryptocoins, you'll need a powerful CPU and/or a powerful GPU (sometimes ASIC mining is allowed, but you'll need to get ahold of it first). The equipment is used for the calculation of crypto blocks. Some dedicated miners build mining farms made up of tens or hundreds of computers.

4) Today, turning cryptocurrency into real money and vice versa, is no longer impossible. Online electronic currency exchangers make it happen in virtually no time.

Posted on
26 September 2016