What is a cryptocurrency?

What is a Cryptocurrency?

Cryptocurrency is formed from two words - “crypto” (data encryption) and “currency” (medium of exchange). Thus, a cryptocurrency is a medium of exchange (like ordinary money) that exists in the digital world and uses encryption that ensures the security of transactions. Cryptocurrency is an alternative form of payment in cash and credit cards.

In simple terms, cryptocurrency is a type of digital or virtual money. It serves as ordinary money, such as dollars, pounds, euros, yen, etc. But it has no physical counterparts — banknotes or coins that can be carried around, that is, the cryptocurrency exists only in electronic form.

How is cryptocurrency different from digital currency?

Unlike fiat currency (legal means of payment, which includes most paper money), digital currency does not have physical equivalence stored in the form of cash or gold. It consists of arbitrary numbers stored in a user account.

Like regular cash, digital currencies are accepted as a means of payment and can be used to purchase goods and services. They can be transferred between accounts, and they can also be exchanged for cash.

Cryptocurrencies are a type of digital currency. They have arisen to address the problems of centralization, confidentiality and security problems associated with conventional digital currencies.

The principle of decentralization is used in cryptocurrencies. This means that transactions made by cryptocurrency owners are not controlled and not regulated by financial authorities. Because cryptocurrencies use cryptography, they offer a robust security system that is hard to crack.

Below is a list of the main distinguishing features of cryptocurrencies from digital currencies and fiat money:

1. Decentralization. As in the traditional banking system, most digital currencies are regulated by regulatory agencies, such as the Central Bank and other government agencies. This means that all currency exchange transactions are controlled, and their exchange rate is determined by these regulatory bodies.

On the other hand, cryptocurrencies are completely decentralized. This means that no state can control them. The rules are established by the cryptocurrency community.

2. Anonymity. With digital currencies, it’s almost impossible to hide account holder information. To use electronic wallets like PayPal, you need to provide personal information such as your name and address.

On the other hand, you do not have to disclose any personal information when you open a wallet for trading cryptocurrency. Coins such as Dash are used to ensure complete anonymity.

3. Transparency. The digital currency structure allows only government organizations to access information about transactions.

On the other hand, cryptocurrency transactions are publicly available. You cannot find out who is behind a specific account, but you can track transactions and monitor the amount of money in the system.

4. Transactions. Because transactions are monitored by central authorities when using digital currency, they can easily mark transactions as suspicious, or even block an account.

On the other hand, once the cryptocurrency transaction is completed, it is automatically added to the blockchain and becomes irreversible forever. No one can block your wallet and transfer your funds to another account. Since the exchange of cryptocurrencies is carried out without intermediaries, the transactions have high speed and low commissions.

5. Security. When you open the crypto graph, you get a private key, which is impossible to crack if you keep it in a safe place. But do not lose it, because without it you will not be able to enter your wallet, and you will not be able to restore it.

What is cryptocurrency mining?

Cryptocurrency mining is the process by which recent transactions are checked and new blocks are added to the block chain.

Miners select pending transactions from the pool and check that the sender has enough funds to complete the transaction. The second verification confirms that the sender has authorized the transfer of funds using his private key.

The mining process solves complex cryptographic tasks that require powerful hardware. For mining can be used the power of computer video cards (GPU), processor (CPU) and specialized equipment (ASIC).

Mining is one of the possible earnings of cryptocurrency. The miner gets a good reward for creating each new block. However, this method of earning requires a lot of investment. In addition, over time, the complexity of mining increases, so you need to constantly upgrade the available capacity.