What Is Cryptocurrency In Simple Words For Beginners
The growing popularity of Bitcoin, Ethereum and other cryptocurrencies lead many to ask the question «What is a cryptocurrency?». Not everyone understands what it is, how it works and what it’s for. Let’s try to answer these questions in simple words.
Cryptocurrency is an electronic payment and investment tool that is completely virtual, stored on electronic wallets. The unit of measurement of each cryptocurrency is «coin», i.e. the coin. It is not possible to forge, copy such coins or transactions because the technology uses digital signature and encryption, i.e. cryptography.
What is cryptocurrency?
The term «cryptocurrency» was first used by «Forbes» magazine. The article on Bitcoin was called something innovative for those times and meant the beginning of a new era.
So how does cryptocurrency differ from real money and bank accounts? What are the main differences? Cryptocurrency for Dummies and many courses on crypto technologies and blockchain are suitable for both newcomers and experts nowadays. Today is the best time to build your educational process and become a true specialist in the field of Cryptocurrency.
Peculiarities and differences between cryptocurrency and real money
Cryptocurrencies are electronic currencies with a number of distinctive characteristics that differentiate them from real money, bank accounts, and other payment systems. Consider these differences with simple explanations.
- Cryptocurrencies are completely virtual.
Unlike fiat (real) money, cryptocurrencies have no real expression. In order for money to appear in your bank account or in any payment system, you first have to put it there – through the bank’s cashier’s office, terminal, etc. Cryptocurrencies are issued virtually by the members of the system.
The cryptocurrency is decentralized, i.e. there is no single authority that issues it (releases it), regulates its circulation and exercises control. The cryptocurrency is based on blockchain technology. This technology stores the database and processes on the computers of the participants of the system. The history of all transactions is usually stored in the so-called «cold» wallet, which is installed by the system users on the computer. The cryptocurrency is issued by means of miners by anyone who wishes.
Every cryptocurrency is an anonymous system. When creating a cryptocurrency wallet, it is not necessary to confirm the identity and give your name and data. All transactions are anonymous.
- Lack of mediators.
When using fiat money, there are always intermediaries – banks, payment systems, etc. These intermediaries set their own rules, take interest in their work. The cryptocurrency is received directly from the sender to the recipient.
- Open source, full system transparency.
Cryptocurrencies are not immune to inflation. The price of a cryptocurrency depends on the demand for it and is not tied to the economy of states.
- Protection against forgery.
Cryptocurrency is a fully secure system, and they can’t be counterfeited, copied.
- Low fees for payments.
Commissions on cryptocurrency transactions typically comprise one-thousandth of a coin. However, with a very high price for a specific cryptocurrency and a heavy network burden (as with Bitcoin in late 2017), the transaction price may not be so cheap.
- The impossibility of using crypto coins when you lose access to your wallet.
If the owner of the «cold» wallet has lost to it accesses, has forgotten the password, then it is not possible to use the money. This creates some inconvenience, but at the same time increases the value of the coins by reducing their turnover.
What cryptocurrencies and algorithms exist
Since the foundation of the first Bitcoin cryptocurrency in 2008, many cryptocurrencies have appeared. Cryptocurrencies differ in diverse parameters – anonymity, security, block size, etc. The nuances of cryptocurrencies are related to the algorithm on which the system works.
Most popular cryptocurrencies
Currently, the most popular cryptocurrencies with the highest rates and market capitalization are:
- Bitcoin is the first and most expensive cryptocurrency, with more market capitalization.
- Ethereum is a rapidly breaking cryptocurrency, probably the second most popular cryptocurrency after Bitcoin.
- Bitcoin Cash
Cryptocurrencies are less popular but are new interesting coins. Examples include Cardano, Ripple, NEM, NEO and many others. There are currently over 2,000 cryptocurrencies and new ones are constantly emerging.
Most popular algorithms
Each cryptocurrency has its own algorithm. The most popular cryptocurrency algorithms are:
- Dagger-Hashimoto (Ethash)
What is Bitcoin?
Bitcoin is the first cryptocurrency in the world to appear in 2009. Its developer is an anonymous programmer or a group of programmers under the pseudonym Satoshi Nakamoto.
At the development stage, many programmers were interested in the Bitcoin project, but few believed in such success, which is now popular with Bitcoin and cryptocurrencies in general.
Bitcoin has the highest rate and the highest market capitalization of all cryptocurrencies.
Bitcoin, due to the fact that Bitcoin is the first cryptocurrency, has a number of technical imperfections. Bitcoin uses the SHA-256 algorithm. After a large number of transactions, the network is under pressure. In order for a transaction to have a confirmation priority and can be executed, a large fee has to be paid. Since the Bitcoin rate is high, the commission is too high and it is not very convenient to make small payments via Bitcoin.
At the moment, Bitcoin is more interesting as an investment instrument than a means of payment.
How do you buy a cryptocurrency?
Cryptocurrencies are something that can now be purchased with multiple means of payment quite easily. Cryptocurrencies can be bought at exchanges. It can be purchased quickly and in many ways.
Cryptocurrency can be purchased by means of different means of payment:
- Visa/Mastercard card;
- Perfect Money;
- Paypal and many others.
Many cryptocurrencies can be bought on the exchange. The most convenient for newcomers will be cryptocurrencies:
- exmo.com (exmo.me);
- yobit.net (yobit.io).
After registering and confirming e-mail on these exchanges you can buy a cryptocurrency.
What is cryptocurrency mining? How to make cryptocurrency?
Cryptocurrencies can be generated by mining. Mining can now be done with a variety of tools. Consider the most popular.
- Mining on video cards.
Cryptocurrency is generated by computer graphics cards. However, not all video cards are suitable for this purpose.
- Mining on ASIC devices.
ASIC is a special device that is created for mining. Such devices are designed only for specific algorithms, not all cryptocurrencies can be mined by them. Most cryptocurrencies are mined by video cards and their algorithms provide protection against mining by ASIC devices.
- Cloud mining.
The point is that you’re not generating cryptocurrency with your own capabilities, but buying the capacity for mining on special services. The difference between the resulting cryptocurrency and the power charge will be revenue. The most popular service for mining is nicehash.com.
Cryptocurrency is an interesting investment tool. But as with any investment, there are certain risks that need to be taken into account by investing and trying to explore the issue as much as possible. Stay tuned with our blog to get the most up-to-date cryptocurrency news. Leave your thoughts in the comments below. Good luck!