What is cryptocurrency in simple words

[BillShiphr]

Cryptocurrency is electronic (digital) money. In physical embodiment, cryptocurrencies do not exist (in the form of banknotes or coins). They can only exist as records in computer databases. Most often, digital tokens (coins) are stored on the blockchain, i.e. in a distributed database or blockchain. The blockchain allows you to forever store all transactions in currencies and ensure the protection of the network.

Cryptocurrencies were born in response to the need to create an analogue of independent electronic money, which would be convenient to transfer and store. However, if such independent electronic money were imagined without cryptography, their transfer and storage would be ineffective due to the theoretical possibility of double spending. What is double spending? This is a repeated (or multiple) sending of the same amount. If the currency is stored in a centralized database, breaking into such a database will allow multiple spending of the same amount. That is why the idea of ​​creating decentralized cryptocurrencies and blockchain technology arose.

To handle cryptocurrencies - buying, selling and exchanging - they usually use special software - wallets, which are produced by different suppliers. Wallets come in the form of applications and web services. On his wallet, the user can always see the balance of funds and their equivalent in fiat money (traditional money).

How cryptocurrencies appeared
The first and most successful cryptocurrency is Bitcoin, the creator of which is a person (or a group of people) under the nickname Satoshi Nakamoto. In early January 2009, he completed the development of the blockchain program code and at the same time mined the first genesis block of the network. Since then, Bitcoin has been gaining popularity and value.

Bitcoin is considered the main, most important and largest cryptocurrency in terms of capitalization. However, there are many others at the moment. The different types of cryptocurrencies are described in this article. In total, there are over 6,000 different cryptocurrencies at the moment, but many of them are unknown and are unlikely to ever be known. In fact, more and more currencies appear every day, and it is simply impossible to keep track of all of them.

Another of the most famous cryptocurrencies is Ether. It is the second largest cryptocurrency in terms of capitalization and the most popular among decentralized finance and smart contracts. The Ethereum project appeared in 2013 as a result of the development of Vitalik Buterin and his partners, and the blockchain platform itself was launched on July 30, 2015. Since then, Ethereum has become the main standard in the smart contract and decentralized application environment, and its value has also steadily increased.

Other top cryptocurrencies include Binance Coin, Ripple, Dogecoin, Tether, Cardano, Polkadot, and Litecoin.

More recently, new classes of cryptocurrencies have appeared - NFT and social tokens.

Practical application of cryptocurrencies
High volatility and colossal percentages of return on investment in crypto is good, but what are the practical benefits of cryptocurrencies? After all, it would be sad to realize that all this hype to crypto and full of news headlines is just a temporary and bright game, doomed to an early end.

Indeed, the realm of cryptocurrencies extends much further than just “buy and run”. Here are some of the uses for this new asset class.

The first and most obvious way is to transfer money directly to another person. Now, in order to pay someone in fiat money (or receive money in fiat money), both parties must have a bank account. But there are a lot of people in the world who do not have a bank account or do not want to open one. Cryptocurrencies allow you to exchange money bypassing regulatory authorities and large banks. For example, through the exchanger letsexchange.io.

Safe storage of assets can also be considered a benefactor not available to fiat money. For example, if someone wants to organize the storage and accumulation of their cryptoassets, he can simply open a wallet and place an arbitrarily large amount in the crypt on it. At the same time, if desired, he can do it anonymously.

We will not bypass smart contracts either. Where can we go without them! A smart contract is a program (robot) that is executed only under certain conditions. Smart contracts are interesting in that they allow you to make transactions (any - buying / selling something, transactions on exchanges, etc.) without intermediaries, and the result of the transaction will be recorded in the blockchain and no one can cancel it. In other words, smart contracts act both as a guarantor of a transaction and as a register of information on transactions. The Ethereum network was a pioneer in this area, and a great variety of decentralized applications, smart contracts and DAOs are now being built on it. There are other networks for smart contracts, for example, NEM, Stellar, Hyperledger Fabric, Binance Smart Chain and others.

Recently, all kinds of lending platforms, profitable pharming, and other applications of the DeFi sphere have appeared, which we will definitely talk about in the following articles. All these mechanisms also appeared thanks to cryptocurrencies and blockchain.

There is also a new trend that cannot be ignored - social tokens, which were mentioned above. This is a new and very interesting way of using cryptocurrencies, the features of which are just beginning to be seen in the crypto zone. But it is already obvious that in the future this phenomenon will help many people find funding for their projects and ideas, and investors - make good money on the talents of others.

Disadvantages of cryptocurrencies
For all its attractiveness, the crypt also has its drawbacks in comparison with fiat money:

the first and most obvious drawback is high volatility. Probably, it is difficult to imagine another asset that can “go down” by 25% in a day, and then grow by 40%. And in a crypt this is easy;
inability to withdraw payment. In fiat money, this can be done if the payment was sent by mistake, but not in crypt. There is no administrative body, no one controls this area, here everyone is for himself, and everyone is responsible for the safety of their money;
danger of loss. Indeed, in order to store a crypt, a person himself must take all measures to remember passwords and addresses. There is no bank where you can go, show your passport and restore your card; here - full personal responsibility.
Let's not be cunning and admit that the opportunity to make a lot of money on the cryptocurrency is exactly what attracts many people to the cryptosphere. In recent years, 2020 - early 2021, the entire crypt has grown very strongly, and some projects have shown hundreds of percent of profits. Obviously, this is not the limit, and we have yet to witness "to the moon" for many currencies and ... the same sharp falls.

[Damion]

Hi. This is because cryptocurrencies are very volatile, which is why many people love them and make fortunes from it. Most likely you will not even have a commission when buying crypto on robinhood api and I think it's really cool, but of course at the moment buying bitcoin for investment is a bit risky, although it makes some sense to wait for the recession and buy.

[gaberiel]

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[goliath]

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