Only the lazy have not heard about the existence of such a phenomenon as cryptocurrencies, and the phenomenal growth of the bitcoin rate today. In this article, we will analyze in detail what a cryptocurrency is, and also tell you how legislation regulates this market.
What is it and how it works
The word “cryptocurrency” is a literal translation from the English term “cryptocurrency” (crypto – secretly, currency – currency). In the professional speaking community, the informal name “crypto” is popular, and virtual coins are called “tokens” or “coins”.
How the cryptocurrency market works. Cryptocurrencies are cryptographic (mathematical) codes. Due to the encryption features, each code is unique and cannot be used twice. Accounting and issuance of various cryptocurrencies are handled by thousands of Internet users in a distributed computer network around the world.
What are cryptocurrencies bitcoin
It is the first and most popular digital currency. Bitcoin appeared during the financial crisis of 2008 as an experiment to create a decentralized payment system, that is, more “honest”, efficient and independent of regulators.
The supply of bitcoin is limited: the release into circulation is designed for 125 years, and this is only 21,000,000 coins. The stability of its network and the extraction of coins do not depend on the decisions of the authorities, the pace of the spread of epidemics and other factors significant for the traditional economy. This peer-to-peer, that is, assuming equality of computer nodes, payment system allows you to make transactions in decentralized networks without the participation of intermediary banks and do not pay them a commission fee.
The history of the launch of bitcoin began in October 2008, when a manifesto, or technical description, and the first version of the code appeared on the network, published by a person or group of people under the pseudonym Satoshi Nakamoto.
There is a popular theory that bitcoin has much more in common not with fiat money, but with gold, the digital version of which it is often called. It is possible that in the future the virtual currency will increasingly take positions away from the precious metal.
Here is how gold and bitcoin prices are now correlated:
Image Source – ZeroHedge Blog
Altcoins and tokens. Cryptocurrency platforms
Due to the fact that the source code of bitcoin was open and public from the very beginning, any programmer got the opportunity to “modify” it and create a new product – a “fork” based on the bitcoin code, but with arbitrary functionality. Thus began the era of altcoins, or all blockchain-based projects-varieties of cryptocurrencies that appeared after bitcoin. Today their number is already several thousand.
Cryptocurrencies differ in the parameters of maximum circulation, the time of production of a new block, and so on. In different digital currencies, the right to form the next block is received by the one who:
- will do the work (proof-of-work);
- has a certain amount on the account (proof-of-stake);
- will provide some resources (proof-of-space).
The formation of the next block may be based on another procedure that is easy to check, but difficult to perform or fake.
As for the functionality, it is also different. This can be, for example, a decentralized data storage similar to Dropbox and Yandex.Disk, only on the blockchain, where users themselves can “rent out” space on their devices and receive project tokens in return. You can also rent computing power – now there are already several projects that allow you to monetize the time when your device is not in use.
Other projects allow entire applications to run on a decentralized network. Like, for example, the second most popular cryptocurrency Ethereum, or ether. This is, as the developers themselves call it, the “world computer”, that is, a platform for creating decentralized online services based on the blockchain, built on smart contracts – completely autonomous algorithms stored in the blockchain and working without human intervention. Launched in the summer of 2015, the platform is currently the second largest in terms of capitalization, largely due to the fact that you can launch your own token on the basis of ether.