Cryptocurrency is digital money. This asset class does not exist in physical form but is created virtually through computer technology. However, unlike Paypal dollars or World of Warcraft tokens, digital currencies are created using cryptographic methods that protect both the asset itself and all transactions with it.
Learn more about what a cryptocurrency for dummies is, about the history of a new financial instrument and its features from our material.
What Is Cryptocurrency?
The word “cryptography” comes from the ancient Greek “kryptós” (hidden) and “graphein” (to write). In its most general sense, it means sending hidden messages that can only be read by the recipient to whom they are intended. The use of cryptographic techniques ensures secure communication. Accordingly, this also applies to the creation of assets, as well as the conduct and confirmation of transactions with them.
History Of Cryptocurrency For Dummies
The theoretical concept of cryptocurrency dummies has existed long before their debut in the virtual space. Early adopters of this idea were excited about how the use of computer technology could solve the practical and political constraints that exist in the segment of traditional fiat currencies. In the 1990s, there were many attempts to create a global digital currency, but they were all unsuccessful.
And finally, in 2008, a certain programmer (or a group of programmers) under the pseudonym “Satoshi Nakamoto” tried to create a digital monetary system without a central controlling body. They started talking more actively about the new financial instrument as a new phenomenon in 2009, after the first popular cryptocurrency, bitcoin ( BTC ), was launched.
Creation Of Cryptocurrency
Cryptocurrencies are a sequence of encrypted units of account that are generated as a result of mathematical calculations and are stored in a decentralized network in the form of blocks.
While the models for these computations may vary, generally most cryptocurrencies are created through mining. This is the name of the process of maintaining the functioning of the network and solving complex mathematical problems to create new blocks. For such efforts, miners are rewarded with new coins.
The level of reward for mining a block in the bitcoin network and other information on cryptocurrency as of November 3, 2020.
Besides, the miners perform transaction verification. When an asset is transferred from one account to another. Then, the miner confirms the transaction, and each network node, or node, adds this record to its database, making it part of the blockchain.
The creation of cryptocurrency for dummies is carried out mainly based on blockchain technology. Blockchain is a distributed ledger, or database system, distributed across multiple network nodes. Its important feature is the grouping and organization of all data in a cryptographically secure blockchain. Data is transmitted over the nodes that form the network, duplicated on them, and synchronized.
Thus, all information is stored at once on several network nodes. All this determines the security of data, making transactions added to the blockchain safe and solving the problem of double-spending or other fraud.
What Is Cryptocurrency For Dummies?
The original purpose of creating virtual currencies is an alternative to physical money. However, cryptocurrencies potentially have a wider range of uses. So, with their help you can:
- Create smart contracts.
- Carry out cashless transfers around the world.
- Rent computer power.
- Rent out the free computing power of your hard drive in the cloud.
- Prove ownership of an asset.
The scope of cryptocurrencies is constantly expanding. As companies embrace the crypto space, ordinary people have more opportunities to use digital assets in various transactions and for different purposes.
Why Are Cryptocurrency For Dummies Better Than Fiat Money?
There is no need for intermediaries (such as a bank or other third party), as well as the conclusion of user agreements or the provision of guarantees. Besides, you can send and receive cryptocurrencies on condition of anonymity, without providing your identification data.
It is a decentralized network that is not subject to the control of the government or centralized authorities. It is open to every user and simultaneously belongs to all of its members. These characteristics of cryptocurrencies are especially relevant for countries with unstable political systems.
Such currencies are distinguished by an extremely high level of security. Databases stored in a distributed ledger are extremely difficult to hack.
The fees for coin transactions are very low compared to the services of the traditional banking sector.
The Internet knows no state borders, so cryptocurrency payments can be made without hindrance around the world.