What are the Advantages of Cryptocurrency

June 3, 2020   Bitcoin

Cryptocurrency is gradually becoming more and more popular. However, many people still have no idea what it is. Moreover, some believe that digital currencies are a stronghold of scammers and fraudsters.

In fact, bitcoin, ethereum and other altcoins are built on the basis of advanced financial technologies. They open new horizons for humanity. It is convenient to store assets in cryptocurrencies; you can make good money buying and selling digital coins.

In this article we will overview how the first cryptocurrency appeared, why it is needed, who created it. We will describe the main characteristics of digital currencies and their advantages. You will also learn how cryptocurrency networks work, where and how digital currencies are stored, where to get bitcoins, ethereum and other popular coins. Each section of the article will answer one of the questions posed.

How did the first cryptocurrency appear?


The word “cryptocurrency” first appeared in the Forbes article “Crypto Currency”. This happened back in 2011. By that time, the Bitcoin network had already been developing for more than two years. The term was liked by the media and the cryptocurrency community. It has become increasingly used even on television. Since then, the word "cryptocurrency" has firmly entrenched in the information space.

If you do not go into details, cryptocurrency, or digital currency, is just a means of payment. It "exists" only in electronic form, like regular programmer code. It is called so because operations with cryptocurrencies are performed through cryptographic elements. Also, an electronic signature is used to conduct operations.

All digital currencies are measured in so-called "coins". Bitcoin (BTC) and other digital currencies do not have any real security. That is, there is no BTC binding to gold, oil or the dollar. The price of digital currencies is determined by the current market rate.

The main difference between cryptocurrencies and ordinary money, fiat, is that they are digital in nature. Euros or dollars exist in paper form. To replenish your bank account, you need to deposit money through an ATM. Paper money is printed by central banks. In turn, bitcoins and altcoins are “born” immediately in digital form.

What is digital currency for?


In 2020, ten years after the advent of bitcoin, not everyone understands how to use digital currency for their own benefit. Let us list what cryptocurrencies are for.

  • First, digital currencies, like other means of exchange, can be used to pay for goods or services. Most often they are accepted in online stores. Moreover, in the EU and the USA, they are gradually starting to take bitcoins offline. For example, you can buy coffee for BTC in Starbucks. In addition, coins can be exchanged for fiat, that is, for dollars, euros or yuan.
  • Secondly, digital currencies are becoming an increasingly suitable asset for long-term investments. You can buy a certain number of coins and wait until their rate rises. For example, the rate of BTC over ten years has grown 100 thousand times.
  • Thirdly, you can also profit from the volatility of bitcoin and altcoins. The course usually changes by 5-10% during the day. If you sell and buy tokens at the right time, you can make a small profit every day. True, for this it is necessary to have certain analytical skills and a flair for the trader.
  • Fourth, you can just save your money in the form of digital currencies. This is quite safe, because stealing money from a wallet is very difficult. Only if you yourself give the attackers access to your account. By the way, remember that without a private key you yourself will not be able to regain access to money. So, don’t lose it!

We have listed only four of the most obvious uses for cryptocurrencies. In fact, digital currencies are a whole world.

Who creates digital currencies?


There are several main stages of creating cryptocurrencies:

  • ICO
  • mining - PoW
  • minting - DPoS, DPoS, LPoS, PoC, PoI, etc.

Cryptocurrency ICO is the primary issue of coins. It is used to collect investments at the stage of launching a cryptocurrency startup. Sometimes they are limited to this stage, that is, no more coins are issued. For example, Ripple initially created 100 billion XRPs and does not plan to release them anymore. XRP is the third largest digital currency by capitalization.

Another option for issuing coins is mining. For example, miners get rewards for issuing bitcoins and ethereum. “Mine” means to calculate new blocks in a blockchain using a certain algorithm. These are very complex mathematical operations that require significant computer power. There are many mining farms in the world. Besides, special devices are used for cryptocurrency mining - ASIC miners, as well as powerful video cards.

Another option for issuing cryptocurrencies is minting, or forging. This is a trickier way to create new blocks on the network. When using this method, the algorithm for forming the block does not depend on the capacity of the equipment, but with a higher probability the block will be formed by an account with a greater current balance. In other words, the richer you are, the more blocks you can make. This type of minting is also called PoS mining, but there are other varieties of minting, for example: DPoS, LPoS, PoC, PoI, PoB, PoAuthority, PoA, PoET, pBFT. This may not be a complete list. The ways of forming blocks are increasing along with the development of the blockchain technology itself, so even it’s hard for me to keep track of.

In all three cases - ICO, mining, minting - new coins are literally generated “from the air”. However, mining takes a lot of electricity, for which you have to pay. So, in this case, we can say that the coins are “mined” from electricity.

Key Features


At the moment, according to Coinmarketcap, there are 2361 names of cryptocurrency assets. They all have different tasks, but they have one function in common, which is mandatory for every cryptocurrency - the ability to transfer an asset between users. The speed of transfer and the size of the commission depends on the architecture of the blockchain. For example, the duration of a transfer for Bitcoin and Ethereum can reach several hours, depending on the network load and the low bandwidth of the first generations of blockchain. On the other hand - EOS, Stellar and all coins created using Graphene technology are transferred in a matter of seconds.

The same can be said of the commission fees. It is completely different and somewhere it doesn’t exist at all, such as in IoT coins, but somewhere it can reach several dollars, as is the case with Bitcoin.

In fairness, it should be noted that when transferring Bitcoin and Ethereum, the user sets the commission. The blockchain nodes of these currencies process transactions in descending order, which means that the more the sender has set a commission, the faster the transfer will be. This is a much more honest approach than with a bank transfer, where the commission is tied to the transfer amount and quite large, but at the same time, there is a risk that with a very small commission, your transfer may hang in the blockchain of the network for a very long time.

A bit about blockchain


Most cryptocurrencies are based on blockchain technology. Roughly speaking, this means the following: the network database is not centralized, but distributed over many blocks. Copies of blocks are distributed to all holders of a full node - a computer connected to the blockchain network. As a rule, the node holder receives a reward from the network in the form of a commission. For example, for Bitcoin, each holder of a special node that is engaged in mining receives a reward. Thus, the blockchain network, thanks to its self-copying into each of the nodes and wide geographical distribution, becomes decentralized and resistant to attacks. Since all nodes are closed in a single network and block recording is synchronized for all participants at the same time, an attacker’s attempt to “fake” cryptocurrency and change the record on one computer will be immediately detected and prevented by other nodes whose copies of the blockchain differ from counterfeit.

The transaction scheme in the blockchain network itself can be described as follows. Suppose the owner of wallet X transfers his assets to wallet Y. The transfer operation is divided into blocks. Each block has its own number and hash sum from the previous block. Next, the nodes come into play. They first check for errors in the operation. And then each member of the network writes the operation to their copy of the database. Finally, a proven block is added to a single blockchain network. It contains all the information about all transactions that were completed earlier. Transfer of funds is completed!

What are the advantages and disadvantages of cryptocurrencies?


Let's start with the benefits:

  • Cryptocurrencies have no physical appearance. No need to release a lot of unnecessary waste paper. All operations are carried out electronically.
  • Networks of digital currencies are decentralized, and therefore not controlled by the certain group of people or the state.
  • Controlled emission of cryptocurrencies is carried out not in the central bank, but in the process of mining or the algorithm that is laid down in the blockchain protocol. Some currencies, such as Ripple, were already initially issued in full at the initial stage and their number cannot be changed.
  • Anonymity of cryptocurrencies. This statement, of course, does not apply to all currencies, but only to a limited list that uses anonymization technologies. First of all, anonymous currencies include Monero and Zcash.
  • Cryptocurrency transfers are carried out without intermediaries and around the world, and the cost of a transfer is several times cheaper than interbank and international transactions

Now about the disadvantages:

  • The risk of loss of funds due to hacking cryptocurrency exchanges and wallets;
  • Attack 51 is a hacker attack that is possible if attackers own more than 50% of the network’s production capacity. In this case, they have the opportunity to make changes to the blockchain and falsify transactions,
  • The great volatility of the cryptocurrency exchange rate makes it difficult to use them as a means of payment,
  • The problem of legal regulation of cryptocurrency. In some states it is prohibited as an asset class, in others it is in the gray zone.
  • Manipulation of the rate by large holders and stakeholders,
  • The problem of backing by real assets. Despite statements and high-profile disputes from the creators of digital assets, there is no cryptocurrency truly secured by natural assets. Due to the lack of legal regulation, even currencies such as Tether (USDT), which were initially secured by the dollar in the ratio of 1 to 1, are now faced with problems confirming their real value.
  • ICO fraud. According to experts, about 80% of the ICOs that took place from 2017 to 2020 are a case of fraud.
  • The risk of losing the access key to the wallet. Since cryptocurrencies are a decentralized asset without an administrator, only the owner has access to the asset. In the event of the loss of the key or the cryptocurrency owner’s death, access to the asset will be permanently lost.

Where and how are digital currencies stored?


Where can we store digital currencies so that they are not stolen by scammers? This question often haunts newcomers. The answer is: cryptocurrency is stored in wallets. Such a wallet can be either a regular program on a laptop, an application on a smartphone or a wallet on the Internet, which can be accessed using any browser.

The safest method of storing digital currencies, of course, is considered a hardware wallet. The hardware wallet cannot be accessed over the network. The fact is that this is a separate portable compact device that is not connected to the Internet.

Sometimes such a wallet is divided into several parts, which are stored in different places. This enhances the security of cryptocurrency assets.

Where to get digital currency?


The article is drawing to a close. Let's talk how to get cryptocurrencies. In order not to drag out our story, let’s list only the main ways. Digital currencies can be bought on cryptocurrency exchanges for fiat, i.e., for regular currency. You can also use the services of exchangers.

There are options for how to earn coins without investments.


Firstly, you can go in for mining. For mining, you need to create a powerful station from video cards or ASIC miners. This is enough for experienced technicians. Your "farm" will carry out the complex mathematical calculations that are needed for the network to work. And you will receive a reward for this in the form of cryptocurrencies.

Secondly, you can also do cloud mining. This term refers to the use of other people's capacities for mining. You will rent them and pay certain money for it. It may turn out to be unprofitable for you. Check it out for yourself.

Thirdly, you can use “taps”. These are special resources that offer to receive almost free coins. To do this, you will need to perform various tasks: watch ads, register on sites, etc. Try it if you are not sorry for your time.

Conclusion


Remember that digital currencies are very different. So, if you decide to become a member of the cryptocurrency industry, find yourself a suitable project. It is not necessary to buy Bitcoin or Ethereum, but it is better to focus on the cryptocurrency, which occupies the top positions in terms of trading volumes. There are hundreds of interesting projects, but in order to protect yourself, it is better to choose the cryptocurrency that is associated with real, existing business.

Author: Kate Solano for Сrypto-Rating.com
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