What is cryptocurrency?
Cryptocurrency is a digital currency that is based on cryptographic algorithms. Unlike classical electronic money, digital currencies have no analogues in the physical world and are a set of encrypted data stored in the blockchain network. The emission of new coins can be limited or not, it depends on the cryptocurrency type. Cryptocurrencies are mainly used outside of any banking institution and are exchanged via the Internet. In central banks and traditional economic systems, governments control the number of coins on the market (for example, printing money or demanding additions to account books). Cryptocurrencies do not have an asset that supports their value, unlike traditional currencies.
How to store the cryptocurrency?
Special software usually required to work with cryptocurrencies - it’s a wallet program (or online resources, cryptocurrency exchanges). This program allows the user to work with the blockchain and create transactions or receive transfers to his address. Wallets on which the currency is stored can be classified:
- Web wallets
- Desktop wallets
- Paper wallets
- Mobile wallets
- Cold wallets
To work with a bitcoin wallet, the user needs two keys
- The public key is the address to which any can transfer funds;
- The private key is a secret alphanumeric code, with which the user signs his translations.
The signed transaction is transmitted to the network and, after network confirmation, the funds are credited to the specified address.
What was the first cryptocurrency?
In 1983, the American cryptographer David Chaum invented an electronic cryptographic monetary system called E-cash. Later, in 1995, he created DigiCash, which used cryptography for anonymous traffic and monetary transaction. Despite the anonymity, the system was centralized. This allowed digital currency wasn’t tracked by the issuing bank, the government or any third party. The concept of digital currency was first described by Wei Dai in 1998 when he proposed the idea of creating a new type of decentralized money that would use cryptography as a means of control. The first cryptocurrency created was Bitcoin, invented in 2009 by an anonymous developer (or group) known as Satoshi Nakamoto. Many other cryptocurrencies, known as altcoins, have been also created. However, not all of them were so successful like bitcoin. Since 2011, interest has increased rapidly, especially during the dizzying growth of Bitcoin in April 2013.
Types of cryptocurrencies
This is the most well-known currency (founded by Satoshi Nakamoto in 2009 with its 21 mln coins limit), and many people worldwide use them in order to proceed their payments. In addition, there are already many companies that allow payments with this digital currency. In this currency, there is a total limit of 21 million bitcoins, which can never be exceeded, as it was originally set. The encryption algorithm makes this cryptocurrency very secured. In addition, for mining Bitcoins, there is a need for powerful computers that spend a lot of electricity.
Ethereum (founded by Vitalik Buterin in 2015 with its unlimited coins limit) is considered to be an excellent alternative to Bitcoin in the virtual currency market, and many experts believe that it can surpass it in value. In particular, the coin is called Ether, and Ethereum is the whole network that controls this cryptocurrency. Ethereum has one of the highest transaction rates since the block generation time is only 15 seconds. The benefits of Ether mining do not decrease, unlike Bitcoin. Ethereum presents a new exclusive technology - smart contracts.
The currency (founded by Charles Lee in 2011 with its 84 mln coins limit) considered as “Bitcoin's younger brother,” or, as some experts compare “If Bitcoin were gold, then Litecoin would be a silver”. This is because it works just like Bitcoin, but has a larger coin limit of 84 million’s Litecoin. Litecoin mostly used by people who have less experience in the cryptosphere because it works much easier. In addition, it is less demanding, since the block generation time is much faster than in Bitcoin.
Dash (founded by Evan Duffield in 2014 with its 18.9 mln coins limit) is a famous cryptocurrency. One of the main qualities that this virtual currency has become known for its anonymity in user transactions. Cryptocurrencies usually provide confidence, because user data is unknown, but all their transactions are registered and everyone can see them. In this case, Dash offers anonymity and eliminate the information about the origin of the committed transactions. This digital currency is considered to be a much safer form of Bitcoin.
How to get cryptocurrency?
There are several ways to get a cryptocurrency:
- Mining. Grants a reward for hash solving;
- Purchase cryptocurrency. This is made possible by exchanges that allow the user to buy and sell coins.
Where cryptocurrencies are legalized?
- Bolivia became the first country to ban the use of cryptocurrency in June 2014. This prohibition was based on the bankruptcy of Japanese bitcoin company Mt.Gox and causing damage to more than one million people.
- In Venezuela, until April 9, 2018 cryptocurrency farms were dismantled. Police arrested their owners for the "legitimization of capital, illicit enrichment, computer crime, funding of terrorism, a fraud on the stock exchange and the application of the national electrical system damage" According to the state of April 9, 2018 government legalizes the existence and creation of cryptocurrency, including Petro. In this state, organizations are instructed to prepare their bureaucratic structure in order to receive and pay with cryptocurrencies that are subject to registration.