About cryptocurrency in plain language
1. What crypto currency is?
It is an exchangeable currency protected by special methods of data encryption using cryptography. It is possibly to pay by crypto currency only on the Internet.
● It is impossible to forge this money.
● It does not have a paper or metal analog.
● Crypto currency is not controlled by banks or governments.
● The currency’s circulation is carried out by a unified network comprised of different independent computers.
● The crypto currency can be used to purchase different goods or services, and
it can also be exchanged for real money.
● Anyone can create their own analog of a crypto currency.
2. What is the need for this kind of currency when there is electronic money?
To make regular money electronic, one has to transfer them into an account through a terminal or a bank. At that, interest, no matter how insignificant, is still taken from each such transaction. For common currencies, like the dollar, euro or ruble, the electronic form is merely an analog. A crypto currency is issued only on the Internet, and it is absolutely isolated. It is not connected with any state currency system. Regular electronic money does not resolve the problem of dual expenditures because the digital key of regular electronic money could be copied and used multiple times. A way of solving the problem is to check the digital key in a trusted source, but if there is only one source, it could be hacked.
A cryptocurrency allows problems related to electronic payments to be solved: fraud, existence of mandatory confirmation by banks, conversion of currencies and interest payments for a transaction. Furthermore, there is no need for a warranter who will confirm the solvency of the participants of a deal.
3. It appears as if there are no principals?
There is no main center responsible for the circulation of crypto currency
on the Internet. The system users can not only independently “obtain” coins, but also create their own currency. Currently, there are hundreds of known types of crypto currency. The demand for them directly depends on the number of people who use them.
4. What can you buy for it?
The first purchase was made two years after the appearance of a crypto currency. Pizza was ordered using virtual money. One person had placed an announcement on the Internet: “I will pay 10,000 bitcoins to anyone who will order me a pizza”. A few hours later the pizza was sitting in front of him. The money was promptly transfered to the provider of the order, a huge amount of money at the current exchange rate totally over 8,000,000 dollars! Now the popularity of crypto currency is increasing every day. This currency is excepted by the payment systems PayPal and Braintree, electronics stores, and the Microsoft and Xbox applications shops. You can also buy brand-name clothing using crypto currency, all you have to do is find the Internet retail shop Overstock. Many supermarkets in America, Germany and the Czech Republic accept payments in crypto currency. But Filipinos turned out to be the most advanced, as they pay for housing and utilities services with this currency. You can also spend crypto currency for charity: For example by giving to “The Red Cross”. And certainly, you should not forget that crypto currency is exchangable for real money.
5. When did it begin to be used?
The first crypto currency appeared in 2008. Its unique algorithm was created by a mysterious genius with the name Satoshi Nakamoto, and he called this coin the bitcoin. At the beginning, only a tight circle of people knew about it. A year later there was a forum bitcointalk. Its popularity was growing
quickly. The rush began at the moment when one of the stock exchanges offered to exchange bitcoin for real money. But not everything went smoothly. The first vulnerability in the
bitcoin protocol was discovered in August 2010. Transactions were not checked for over 24 hours, which
allowed participants to create an unlimited amount of bitcoin. On August 15 a huge amount of Bitcoin went away in one transfer. One hour later the transfer was discovered and eliminated from the chain of blocks.
A high-profile scandal erupted one year later. There was an information leak at the famous stock exchange Mt.Gox of passwords, electronic boxes, hashes. Six hundred users who relied on this information for their coin purses for bitcoin lost their money. And still Bitcoin managed to restore its credibility and stay afloat. More than that, forks, or analogs, began to appear one after another. One of the first ideas to appear was to connect bitcoin with domain names systems, allowing for the creation of a currency called Namecoin. After that, the developers began to experiment with intervals for creating blocks, rewards for blocks, and with other parameters. iXcoin, Litecoin, Peercoin and other alternative currencies were created as a result.
6. How does it work?
The issuance of crypto currencies is carried out through “mining”. Essentially, mining involves solving a complicated cryptographic problem. In its foundation, any crypto currency is merely an encrypted digital file with names and balances written in it as in a register. This file can be decoded using the method of exhaustive search. A regular computer is not suitable for this task, which is why super-fast computers are used for mining. Mining is translated as digging of natural resources, which is why everybody involved in mining is sometimes referred to as miners (diggers).
Different from real miners, these miners work not in mines but in pools. A pool is a service combining capacities of different computers for more efficient digging of crypto currency. All crypto currency mined out by the pool is shared between pool users,
proportional to their work done.
It is possible to exchange one crypto currency to another, and also to acquire dollars, rubles, yuans or euros at a crypto currency exchange.
7. Can anyone earn money in crypto currency?
Theoretically, anyone who will go through the trouble can mine crypto currency. But as was mentioned above, you will not receive normal earnings using a weak computer. You have to invest significantly into “hardware” and software, and do not forget about the cost of electricity. In spite of the fact that crypto currency is often called money from the air, you have to use your brain also.
Mining requires a lot of expenditures on electricity and large computational capabilities. In addition, the complexity of mining money grows with each new user added. Judge for yourself, if there are only 15 members, it is difficult to find a cipher quicker than the others, but possible. But if 15,000 people are searching for the cipher, the probability of a positive result is reduced. Furthermore, interest in crypto currency is growing every day. There are more and more enthusiasts.
8. How to start mining?
To begin, you have to choose a crypto currency. There are two main criteria for making this decision. One is profitability, or in a simpler language, the possibility of making a profit. You can find a lot of calculators in the net allowing you to make calculations in minutes. The second no less important criterion is liquidity, i.e. the quickness and simplicity of conversion into real money. Then you have to choose a pool, on which platform crypto currency mining is carried out. Choosing a pool, pay attention to the commission that will be deducted from your win.
The next stage: you have to install the program with which you will be doing mining. Start up, register, and begin making money. As soon as your computer finds a correct cypher, it sends these data into the system. And you, in turn, get money. The final stage involves moving the money into your own wallet: you have to download a wallet for the currency in which you made an earning. You create an address, memorize a password and don’t forget about the commission from the transaction. The more often you debit crypto currency from the pool balance, the more often you pay a commission. If you don’t want to install
the wallet and keep a rather high amount of blockchain on your own computer, you may store the money at one or several stock exchanges. It is important to remember that stock exchanges sometimes fall under the attack of hackers.
9. Is it possible to earn crypto currency without mining?
Because mining requires a lot of investments, many people began
to earn crypto currency at stock exchanges. How is this done? Everything is simple: you have to buy crypto currency at a lower price and then sell it for a higher price. You put the difference into your pocket, or more exactly, into your electronic wallet.
There are two types of stock exchanges:
● exchanges at which you can exchange crypto currency for national,
● exchanges at which you can exchange one crypto currency for another.
10. Could crypto currency squeeze out paper money?
There is no clear-cut answer to this question. For crypto currency to strengthen its position, it must fulfill the same functions as regular money:
● to be a “means of payments”;
● to be a stable means of saving;
● to act as unit of payment.
If everything is OK with crypto currency in regard to the the first function, the rest are only gathering momentum. So let’s live and see.