What Is Cryptocurrency?

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Cryptocurrency is a digital payment system that does not use banks to verify transactions. It is a peer-to-peer system that allows anyone anywhere to send and receive payments. It is not physical money carried and exchanged in the real world; cryptocurrency payments exist solely as digital records in an online database that describe specific transactions.

Want to learn more and finally figure out the ins and outs? Continue reading our in-depth guide from Alex, an expert in blockchain and cryptocurrencies, to learn all about the history of cryptocurrency creation, its types and principles.

History of Cryptocurrency

Attempts to create digital currencies began back in the early 1990s, but all of these inventions could not compete with electronic bank money or third-party systems such as PayPal.

Now let’s go back to 2009. On January 3, 2009, Satoshi Nakamoto (perhaps a group of people hiding behind this pseudonym) finished developing the programming code for bitcoin, the first cryptocurrency. On that day, the first block was generated, and the first 50 bitcoins were mined. This is how the world learned about blockchain technology, which is now used far beyond just digital money.

Cryptocurrency Types

According to the resource Coinmarketcap on January 3, 2021, there are 4154 different cryptocurrencies. The total market capitalization of virtual assets is more than $274 billion, about 75% of this amount is shared by the 20 largest blockchain projects. A fairly large portion of the coins serve to pay for services on a particular network, are not traded on exchanges, and are of no value to investors.

All cryptocurrencies can be divided into the following types:

• Currencies Coin or payment system coins. Designed to pay for goods and services and can serve as an object of investment. Fully decentralized, anonymous and easy to use.
• Platforms Coins, or internal crypto platform tokens. Financial instruments that users of networks designed to develop and execute smart contracts cannot do without.
• Cryptocurrency Exchanges or internal trading floor tokens. Large cryptocurrency exchanges issue their own digital currency.
• Stable Coins.
• Utility Tokens or service tokens.
• Security Tokens or hardware tokens are a direct analog of securities. Distributed among investors, to strengthen the financial security of investments.
• Crypto Commodities or crypto commodities.

Distinctive Characteristics of Cryptocurrency

Let’s look at three characteristics of cryptocurrency that make it stand out.

Cryptocurrencies are not based on trust.

Systems that manage cryptocurrencies do not require trust; they do not involve third parties. They replace trust with verification. In a p2p network, assets are fully controlled by each participant and transferred between them directly without the approval and control of a governing body (such as a bank).

Cryptocurrencies are immutable.

By its very nature, blockchain technology makes cryptocurrency transactions immutable. They cannot be undone, delayed, duplicated, hidden, or altered. Such a system cannot be cheated in the usual way and is protected from human error, making cryptocurrency infinitely more transparent than simple electronic money in a bank.

Cryptocurrencies are decentralized.

Cryptocurrencies have new coins systematically and transparently created by the system. Take bitcoin: its infrastructure ensures that only 21 million units will ever exist.

How Can I Get Cryptocurrency?

Those who are interested in cryptocurrency have at least once asked themselves this question. There are several ways:

• Buying cryptocurrency. The most affordable and easy way to buy digital currency is to buy it on a cryptocurrency exchange. It is worth noting that on exchanges the rate of cryptocurrencies is more profitable than in exchanges.
• Classic mining. Miners provide the hash rate of their ASICs, video cards and processors to obtain cryptocurrency by using the computing power of the mining equipment.
• Cloud mining. The most profitable way to get bitcoins in the medium and long term. Represents a lease of cloud mining service capacity in the form of a one-year contract. All of the cryptocurrency mined by this power goes to your account. On average, the income is from 130% to 200% per year, it all depends on the rate and the growth of the complexity of the network.

Is Cryptocurrency Safe?

Cryptocurrency gets its name because it uses encryption to verify the transactions made with it. This means that advanced encryption is used to store and transfer cryptocurrency data between wallets and public registries. The purpose of encryption is to ensure security.

In addition, transactions require two-factor authentication. For example, you may be asked to enter your username and password at the beginning of the transaction. You may then be required to enter an authentication code, which is sent via text message to your personal cell phone.

Tips for Investing Safely in Cryptocurrencies

Any investment is always risky, and cryptocurrency is one of the riskiest investment options:

• Information Sharing. Before investing in cryptocurrency, research information about cryptocurrency exchanges. Do your research, read reviews and talk to more experienced investors before moving forward.
• Cryptocurrency storage. You can do this on an exchange or in a digital “wallet.” There are many different types of wallets, and each has its own advantages, technical requirements and degree of security.
• Diversify your investments. Diversification is the key to any good investment strategy.
• Be prepared for volatility. The cryptocurrency market is volatile, so be prepared for ups and downs.

Most Popular Cryptocurrencies for 2021

Today there are several thousand different cryptocurrencies, but most of them are bubbles. The most popular and reliable for 2021 are:

Bitcoin

Bitcoin is the most popular cryptocurrency and, figuratively speaking, the founder of the genre. With its appearance, Bitcoin marked the beginning of the development of all other such currencies. The developer is a hidden group of programmers who call themselves Satoshi Nakamoto.

Ethereum

It is a platform for creating decentralized blockchain-based online services based on smart contracts. It is implemented as a single decentralized virtual machine. It was launched on July 30, 2015. It is sold on exchange services, and the capitalization of the total amount of ether has exceeded thirty billion dollars.

Litecoin

An alternative cryptocurrency that is a fork of Bitcoin. Litecoin is also a payment peer-to-peer system through which transactions and transfers of funds from one user to another can be made. LightCoin was launched in 2011. The main idea of this creation is to become a kind of analog of silver at the market of digital finance, taking into account the fact that already known to you Bitcoin is often associated by its value with gold. The LTC issue is limited to 84 million.

Zcash

An open-source cryptocurrency developed by the Zerocoin Electric Coin Company, which provides privacy and selective transparency of transactions. Zcash payments are published to the public blockchain, but the sender, recipient and transaction amount remain private. The currency was first announced on January 20, 2016.

What’s Next?

There are a lot of opinions about cryptocurrency: some people think all digital money is a grandiose fraud, others argue that it is the future. In any case, if you are going to plunge into this world, you need to follow all the news of the industry and understand all the processes in more detail. Our blog will definitely help you with that: we have interesting articles about everything blockchain-related, as well as comparisons of different cryptocurrencies every week. Join in!