What is cryptocurrency and how does it work?

If a few years ago only a narrow circle of enthusiasts knew about bitcoin and especially about other cryptocurrencies, today they talk about cryptocurrency at the state level. Today, cryptocurrency is an opportunity to transfer funds quickly and safely with a minimum commission.
Beginners should know the basic principles of the cryptocurrency market, as well as have at least a basic understanding of how the system works.

Cryptocurrency, crypto, a virtual currency, is a decentralized digital money that is based on cryptography and blockchain technology.
Like any market, the cryptocurrency market operates according to its own laws. All transactions are transparent and take place without intermediaries, and users’ wallets are anonymous.

Each user in the cryptocurrency market donates a part of the computing power, thus supporting the functioning of the system. Simply put, a decentralized system is supported to varying degrees by all participants. Falsification of transaction data is impossible, since all participants in the system have information about transactions. This also completely eliminates the possibility of blocking user accounts or issuing funds.

Cryptocurrency is a type of digital currency. It is generated by the computer network and stored in users’ electronic accounts. It has no physical counterpart, unlike fiat funds. Coin is a unit of measure for crypto.

The areas in which cryptocurrency is used as a means of payment are extremely diverse. It is used for

• Direct payment of goods and services. Due to the fact that transactions take place without the participation of intermediaries (banks, etc.), the transfer speed is higher, the commission is, on the contrary, less, and the procedure itself is simpler.
• As an option for a long-term investment project. Users who want to invest in cryptocurrency buy it during a fall in the rate and store it in their wallets, waiting for prices to rise.
• For trading. On crypto exchanges, you can make money on short-term fluctuations in the exchange rate by reselling currency.
• Exchange. Using online exchangers, you can exchange cryptocurrencies for each other, or for fiat money, i.e. just buy them and then manage them at your own discretion.
• For doing business. Every year the number of companies using cryptocurrencies to receive payments is growing. There are now booming cryptocurrency startups that raise funds for projects using crowdfunding (ICO).

Cryptocurrency differs from usual or fiat money in a number of key features:

• Has no physical analogue, being a generated code;
• Not secured by gold and foreign exchange reserves or by the state economy;
• The rate of cryptocurrencies is decentralized and is not set by third parties;
• It cannot be faked;
• All owners are anonymous;
• The value of the crypt fluctuates depending on the market situation and the ratio of supply and demand;
• The cryptocurrency does not have an emission center that would release it into circulation.

SIACOIN

Internal coin issued by the Sia platform. The price of the coin on 12/21/2018 was quite small – 0.002839 USD. At the same time, the capitalization amounted to over $ 93 million. In 2018, SC was on the buzz, because this currency has become the most profitable asset for mining. The coin has a low value, but this is offset by a high block reward.

XRP

XRP is now on the second line in popularity among coins, as well as in terms of capitalization. Thus, the capitalization indicator is almost $ 38 billion. XRP is considered the most promising coin in 2019 as the Ripple network is user-friendly and highly detailed. For example, compared to other coins, XRP has a very high transaction confirmation speed – less than two seconds. This is really very fast compared to the same Ethereum, which has a transaction confirmation speed of a couple of minutes. For comparison: for bitcoin, this figure can be up to three hours.

STELLAR (XLM)

At the time of 12/21/2108, the Steller rate was at the level of USD 0.12 with a capitalization of USD 2.34 billion. In the rating of cryptocurrencies, Stellar ranks fifth in terms of capitalization at the time of preparation of the material. In 2014, Stellar was founded under the leadership of Jed McCaleb and Joyce Kim. It should be noted that Stellar is an offshoot of the previous coin, Ripple. At first, the platform even worked on the same protocol, but later switched to its own open-source protocol.

Mining is creating cryptocurrencies. It takes place using special software. As it was written above, the participants of the system give part of the power of their computer to generate a crypt with the help of complex calculations. Simply put, mining has two goals:

• Confirmation of the transaction;
• Generation of new blocks for storing performed operations.

The mining reward is new coins. And if a couple of years ago bitcoins could be mined even on an ordinary home computer, today much more computing power is needed for mining. The fact is that for each new operation, more and more powerful equipment is needed. Today the situation has changed so much that entire companies have started mining.

Despite the fact that there are many ways of mining, we will cover the main ones.

• CPU mining. This mining method has low efficiency compared to others. Coins can be mined, but this method of mining will not bring tangible income due to its low power. The only way to get more or less stable income is when the miner has access to free electricity and a large number of computers.
• Mining on GPU or video cards. The method is relevant for almost all coins, including ether and dash. But it is only effective when using Radeon or GeForce video cards, i.e. a usual video card will not work, you need something more powerful. In addition, GPU mining is beneficial when your goal is crypto, the price of which could potentially rise. Besides, one video card will not be enough. There is a solution – the so-called farms. These are installations that combine many high-power video cards and are connected to a computer. Farms are in high demand in the secondary market because of their efficiency. With the growing interest in cryptocurrency, the price of farms has also increased.
• Finally, cloud mining. In this case, the cryptocurrency is mined through a processing center, which, in fact, leases out part of its capacity to network participants. This method has a significant disadvantage – its effectiveness depends on several parameters, including both service tariffs and the current rate.

Today, cryptocurrency can be issued in three ways:

• One-time issue of coins in combination with limited emission. When a project is launched, a certain amount of cryptocurrency is issued. It is impossible to mine it, since there is no re-issue and the amount does not increase compared to the initial one.
• Limited emission. The most striking example of such an emission is the well-known Bitcoin. Its maximum number is 21 million and not a single coin more. In this case, the value of the cryptocurrency increases with each subsequent coin, since the initial amount remains unchanged.
• Unlimited emission. The second most popular currency, Ethereum, is an example of an unlimited supply coin. Analysts believe that in the future, the currency may depreciate precisely because of unlimited emission. At the same time, the developers are working hard to solve this problem.

Year after year, cryptocurrencies are taking over the market and penetrating deeper into everyday life. The first purchase using Bitcoin was made back in 2010. Then one user of the system paid for pizza delivery to another user by paying 10,000 bitcoins.

At the moment, cryptocurrency can be used to pay for studies, in a restaurant, and even buy real estate. Surprisingly, two out of ten online stores accept Bitcoin as a means of payment. Microsoft has also introduced the ability to pay for their services using cryptocurrency.

The crypt also has a number of disadvantages, which are offset by its advantages. First of all, due to the anonymity of transactions, the crypt can be used for illegal purposes for money laundering and drug trafficking. But despite this possibility, the share of crypto in the shadow business remains relatively small.

There are currently several ways to buy crypto. Let’s dwell on them in more detail.

Crypto exchanges. These are platforms created for trading cryptocurrency among themselves, here you can buy bitcoins by paying with Ethereum, or buy cryptocurrency for fiat, for example, dollars. There are a lot of crypto exchanges today, as the demand for all types of cryptocurrencies is high. Most exchanges work according to the same scheme and are specially designed to be intuitive, so special skills are not required to buy crypto on the exchanges. A new user registers, deposits money into the account, and then makes a transaction. When the transaction is confirmed, the coins go to the wallet.

Payment systems. Nothing stands still, so payment systems are also developing, trying to occupy their niche in the field of cryptocurrencies. This contributes to the widespread introduction of functionality for the sale and purchase of crypto.

Exchangers. They work on the same principle as conventional e-currency exchangers. Here you also need to select the currency that you have and the one you want to buy. The platform will automatically calculate the exchange cost of a given amount. If the conditions and the final price are satisfiying, we confirm the exchange and deposit the amount from the card or e-wallet.

Cryptocurrency wallet. This is not only a place for storing crypto, but also for performing various operations. Most wallets already have a function to buy and sell crypto. Most often, wallets are used to buy cryptocurrencies for fiat funds.

In recent years, interest in the topic of cryptocurrencies around the world has grown significantly. More and more online stores and companies are introducing the functions of paying for goods and services with bitcoins or altcoins.

In order to keep up with the times and have an idea of ​​what a cryptocurrency is, it is enough to understand the basic principles:

• Cryptocurrency is nothing more than a mathematical code that carries information about a coin. It only exists on the Internet without having a physical form.
• The price of a crypt is directly proportional to the interest in it.
• Taxation does not apply to transactions with cryptocurrency.
• Feature of cryptocurrencies – high security standards and complete anonymity of transactions.