Virtual currencies, also known as cryptocurrencies, are like traditional currencies, except that you won’t carry them around in your wallet like regular money. We also store cryptocurrencies in wallets, but virtual ones. Cryptocurrency requires the use of encryption functions to perform financial transactions. The blockchain is the key element that makes virtual money possible, and this technology makes this encrypted currency immutable, decentralized, and transparent.
A cryptocurrency is a digital currency that can be used for payments that are not controlled by a central bank. Cryptocurrency is controlled by software that encrypts transaction data, which is then controlled and stored by the owner.
The idea behind cryptocurrency is to avoid dependence on the old banking system and thus build a new financial system.
It is the kind of money that no one moves without the owner’s consent. In other words, this money cannot be frozen, nobody can just take it, and it is not subject to inflation. Neither government nor society has any influence on them.
Cryptocurrency was developed by a developer nicknamed Satoshi Nakamoto in 2008. Although it is based on already existing technologies such as public key encryption, Nakamoto’s breakthrough was to solve the “double spend” problem.
Satoshi discovered a way to prevent coins from being used in more than one transaction at a time. All thanks to the Proof-of-Work system. Miners with computers that verify network activity have to solve complex mathematical problems. This allows the new transaction to be added to the distributed ledger. The effort and resources involved make it impossible to add conflicting transactions to the blockchain.
Nakamoto launched a network in 2009 and pioneered a new system for transferring funds. Cryptocurrencies can be bought, sold, sent, or received from any PC or smartphone with a basic in-app wallet.
Bitcoin is not the only cryptocurrency. After bitcoin’s debut in 2009, hundreds, and eventually thousands of digital currencies were released. Many of them perform a similar function to bitcoin but have a few additional features.
How can we determine the value of a cryptocurrency when it is not “real”? What about traditional money? We can certainly talk about their decline and replacement by payment cards, which is gradually approaching digital money. Hoarding fiat currency or traditional money is not very smart: among others, it is subject to inflation which reduces its value. In contrast, cryptocurrencies are becoming an increasingly interesting investment opportunity. Bitcoin, the most famous cryptocurrency, has been steadily increasing in value over the long term. Since BTC has a finite supply and cannot be duplicated, it is becoming more and more trustworthy.
Sources: coinmarketcap.com, coindesk.com, wiki, pixabay.com, oKrypte.sk