Digital currencies are virtual or digital currencies intended to be used as a medium of exchange. They use cryptography to protect and verify transactions, as well as to control the creation of new units of any particular digital currency. In fact, cryptocurrencies are limited entries in the database that no one can change unless certain conditions are met.
History
There were many attempts to create a digital currency during the technological boom of the nineties, when systems such as Flowz, Binz and Digicash appeared on the market, but they ultimately failed. There were many, many reasons for its failure, such as fraud, financial problems and even friction between the company's employees and their superiors.
It is worth noting that all of these systems used a trusted third-party approach, which means that the companies behind them verified the authenticity of transactions and worked to facilitate them. Due to the failures of these companies, the creation of a digital monetary system has long been perceived as a hopeless situation.
Then, at the beginning of the year, an anonymous programmer or a group of programmers under the pseudonym "Satoshi Nakamoto" introduced "bitcoin". Satoshi described it as a "dewy electronic cash register system." This is a fully decentralized system, which means that there are no servers involved and no controlling central authority. This concept is very similar to peer-to-peer networks for file sharing.
However, one of the most important problems that any payment network must solve is double costs. This is a fraudulent way to spend the same amount twice. The traditional solution was a trusted third party - a central server that keeps records of balances and transactions. However, this method always assumes the presence of an authority that primarily controls the funds and has all personal data.
But in a decentralized network like bitcoin, each participant has to do their job. This is done using blockchain technology - a public registry of all transactions conducted at any time within the network, which is accessible to everyone. Thus, each user of the network can see the balance of each account.
Each transaction is a file consisting of the sender's and recipient's public keys (wallet addresses) and the amount of money transferred. The transaction must also be signed by the sender using the private key. And all this is just basic encryption. Ultimately, the transaction is broadcast to the network, but first it must be confirmed.
And in the digital currency network, miners can confirm transactions only by solving a cryptographic puzzle. They accept transactions, mark them as legitimate, and then post them online. After that, each node of the network adds it to its own database. Once the transaction is confirmed, it becomes non-falsifiable and irreversible, and the miner receives a reward in addition to the transaction fees.
In fact, any digital currency network is based on the absolute unanimity of all participants regarding the legality of balances and transactions. And if the network nodes differ on the same balance, the system will be significantly disrupted. However, there are many rules that have been pre-programmed and built into the network that prevent this.
Digital currencies are also called cryptocurrencies because the process of maintaining consensus is provided by reliable encryption. This, together with the above factors, makes third parties and blind trust as a concept completely unnecessary.
What can be done with Digital currencies
Purchase of goods
In the past, trying to find a seller who accepts digital currency has been very difficult, if not impossible. But at the moment the situation is completely different.
There are many merchants - both online and locally - who accept bitcoin as a form of payment. They range from large online stores such as "Overstock" and "new egg" to small local shops, bars and restaurants. Bitcoins can be used to pay for hotels, airline tickets, jewelry, applications, computer parts, and even to get a university degree.
Other digital currencies, such as Litecoin, Ripple, Ethereum, etc., are not yet accepted on the same wide scale. However, the situation is changing for the better, since Apple provides permission for at least ١٠ of various digital currencies as an approved means of payment in the "Apple Store".
Of course, users of N digital currencies other than bitcoin can always exchange their coins for bitcoin. In addition, there are sites for the sale of gift cards, such as "gift of", which accept about ٢٠ various digital currencies. With gift cards, you can buy almost anything using digital currency.
Finally, there are markets such as bitefay and open bazaar that accept only digital currencies.
Read more in the article "What can I buy with Bitcoin?""
Investment
Many people believe that digital currencies are the most important investment opportunities currently available. And in fact, there are many stories about people who have become millionaires thanks to their investments in bitcoin. Bitcoin is the most recognizable digital currency today, and until last year, only one bitcoin was valued at ٨٠٠ dollars. And in November, ٢٠١٧ the price of one bitcoin exceeded ٧٠٠٠ dollars.
Ethereum, which is probably the second most valuable cryptocurrency, recorded the fastest growth among all cryptocurrencies that have ever existed. Since May, its value has increased by at least ٢٧٠٠ percent. And when it comes to all digital currencies combined, the market capitalization has grown by more than ١٠٠٠٠ percent since the middle of the year.
However, it should be noted that digital currencies are high-risk investments. As with any other asset, its market value fluctuates. Moreover, they are partially unregulated, there is always a risk of criminalization in some jurisdictions, and any cryptocurrency exchange can be hacked.
If you decide to invest in digital currencies, then it is obvious that bitcoin still dominates. However, over the past year, its share in the cryptocurrency market has dropped significantly from ٩٠ percent to only ٤٠ percent. There are currently many options available, with some currencies focused on privacy, others less open and decentralized than bitcoin, and some simply copying it.
While it is very easy to buy bitcoin - there are many existing exchanges that trade bitcoin - it is impossible to get other digital currencies just as easily. Although this situation is gradually improving with the launch of large exchanges, such as Kraken, Bitfinex, Bitstamp and many others, selling Litecoin, Ethereum, Monero, Ripple and others. There are also several other ways to use the currency, for example, you can trade face-to-face with sellers or use ATMs to exchange bitcoins.
Once you buy your digital currency, you need a way to store it. And all major exchanges offer wallet services. But, although it may seem convenient, it is better if you store your assets in an offline wallet on your hard drive or even invest in an electronic wallet. This is the safest way to store your coins, allowing you to have full control over your assets.
As with any other investment, you need to pay close attention to the market capitalization of digital currencies and any news related to them. "CoinMarketCap" is the simplest solution for tracking prices, volume, trading offer and market capitalization of most existing digital currencies.
Depending on the jurisdiction you live in, once you make a profit or lose your cryptocurrency investments, you may need to include them in your tax return. From the point of view of taxation, cryptocurrencies are treated very differently in different countries. In the United States, the IRS has ruled that bitcoin and other digital currencies should be taxed as property, not as currency. For investors, this means that accumulated long-term gains and losses from trading cryptocurrencies are taxed at the applicable capital gains rate of each investor, which is a maximum of ١٥%.
Mining
Miners are the most important part of any digital currency network, and like trading, mining is an investment. In fact, miners provide account management services to the respective communities. They invest their computing power in solving complex cryptographic puzzles, which is necessary to confirm a transaction and record it in a distributed public registry called a blockchain.
And one of the interesting features of mining is that the complexity of puzzles is constantly increasing, and this is due to the number of people trying to solve them. Consequently, the more popular a particular digital currency becomes, the more people want to mine it, and the process becomes more complicated.
Many people have made fortunes in bitcoin mining. And in the old days, you could make a big profit from mining using your own computer or even a fairly powerful laptop. And these days, bitcoin mining can become more profitable only if you are willing to invest in industrial-grade mining equipment. And this, of course, entails huge energy bills in addition to the price of all the necessary equipment.
Currently, Litecoin, dogcoin and Feathercoin are considered the best cryptocurrencies in terms of profitability for beginners. For example, at the current cost of Litecoin, you can earn anything - from منت cents toاولارات dollars per day, using only consumer devices.
Comments
Post a Comment