In the end, what is the purpose of cryptocurrency? Our clear answers to understand everything

[ad_1]

You may have heard of Bitcoin and Ethereum. You’ve also probably heard that people make thousands, if not millions, of dollars by “investing” in cryptocurrencies. But what is this? Or better yet, what is the purpose of cryptocurrencies?

The main purpose of cryptocurrencies is to solve the problems of traditional currencies by putting power and responsibility in the hands of currency holders. All cryptocurrencies depend on the 5 properties and 3 functions of money..

They also try to solve one or more real-world problems. Let’s see how cryptocurrencies work and why more and more people are starting to appreciate this new evolution of money.

understanding cryptocurrency

1. Cryptocurrencies belong to everyone

Cryptocurrencies work similarly to any traditional national currency, with a few differences. There “fiat moneyThe stream is created and regulated by a government agency. represented from now on debt. Anyone who owns a country’s currency has an IOU issued by that country. This cryptocurrency does not represent a debt.

It certainly represents itself, and its value is determined by what one is willing to trade for it. The decentralized nature of cryptocurrency plays a vital role in how its value is determined. No one owns or regulates a cryptocurrency. Its value is not subject to the political whims of a country or the monetary policy of a central bank.

explanation: Some may view the decentralization of cryptocurrencies as a method of avoiding tax. However, cryptocurrencies like stocks and bonds are also considered an asset. In the United States, they are subject to capital gains tax on sale or barter.

Currencies operating from a central ledger (i.e., a single entity that keeps records of transactions, such as a national central bank), subject to human manipulation and corruption. Decentralized, the cryptocurrency operates on a “distributed ledger” or a shared transaction list. This type of ledger is the heart of cryptocurrency and brings us to the next reason why cryptocurrency matters.

2. Cryptocurrencies are almost impossible to fake

Cryptocurrencies run on a blockchain, which is the distributed ledger we talked about above. Understanding blockchain technology will not only help you understand what cryptocurrency is and why. digital currency power key. The “Block” consists of: encrypted pieces of data.

“Chain”, public database where blocks are stored and linked in sequence. Each block of the blockchain has a specific code that distinguishes it from all other existing blocks.

This unique code is called hash. Information blocks added to the blockchain are added chronologically. A new block is added immediately after the last created block, which also has its own unique hash. Blockchain ledger or block database distributed simultaneously around the worlddistributed among thousands of computers or, in the case of Ethereum and Bitcoin, millions of computers.

Here is a simple explanation of cryptocurrency. Now suppose someone wants to tamper with a single data block in the chain. In this case, it has to manipulate all the blocks from a certain point in history AND update all the computers that hold copies of the blockchain’s ledger. Theoretically possible, but the amount of strength and money required to do this successfully makes it worth a try. practically impossible.

3. Cryptocurrency transactions are (largely) private

With traditional currencies issued by governments, you can make a private transaction or pay for something in person using it. physical types. Paper, metal, cloth and plastic currencies represent only a small fraction of the total amount of most fiat currencies in circulation. Large physical cash withdrawals are promptly reported and reviewed by a central authority such as governments and financial system regulators.

explanation: it’s good to watch big cash transactions. It maintains the legitimacy of the currency and deters criminal attempts such as money laundering.

Cryptocurrencies are different. They rely on well-designed math to track exchanges between two people or companies. This exchange mostly done anonymously.

While the ledger or list of transactions is public worldwide, the parties trading cryptocurrencies are more private. By definition, cryptocurrencies are held electronically in digital wallets. The owner is the private key holder of the wallet.

This currency is changed digitally mostly from wallets belonging to anonymous user.

other explanation: While cryptocurrencies are supposed to be anonymous, advanced forensic analysis can reveal the identity of wallet holders. Some cryptocurrency projects, such as Monero, are designed to resist identity discovery.

A few companies like Titan Bitcoin offer premium physical coins minted with cryptocurrency addresses and verifiable values ​​stored on the blockchain.

An exciting concept for enthusiasts, collectors and even gifts. he brings small digital cryptocurrency in the real world. Disclosure: This is not a paid sponsorship. The author, Data Overhaulers or its parent company does not own bitcoin currency at the time of publication.

4. The security of cryptocurrencies increases over time and in value

We have previously stated that a hacking or manipulation required enormous amounts of power and money, to the point of becoming a worthless effort. To go further, a hacker would need to control more than 50% of the computers that make up the “consensus” network.

A consensus network is simply a collection of computers making copies of the blockchain or distributed ledger. For more established cryptocurrencies like Bitcoin or Ethereum, cryptocurrency networks are so large thathacking is almost impossible.

In the early days of cryptocurrencies, it was easier to seize most of the control as the cryptocurrency network itself was much smaller. This is an important fact to remember for investors or users of new cryptocurrencies whose networks have not reached a relatively large size.

The smaller the network, the more vulnerable it is to hacking. An example of this almost happened to early Bitcoin: a group known as BitFury put together large numbers of computers for “mining”.

What is Cryptocurrency Mining?

Mining is the process by which cryptocurrency transactions are verified and their hashes are assigned to blocks. It requires a lot of computing power. Users who lend their computers to the cryptocurrency validator network receive rewards (via transaction fees) paid in the cryptocurrency they support. BitFury has created a mining pool or verification network that becomes very profitable as the value of bitcoin increases.

However, they were close to reaching fifty percent of the overall strength of the network in 2014. While their goal was not to hack and manipulate the blockchain, they decided to limit the extent of their impact on the Bitcoin network.

The owners of the pool promised that they would never exceed forty percent of the total power of the network. They did this to protect the value of Bitcoin because currency holders can fear a 51% attack from a single trader. If Bitcoin’s value fell, BitFury’s profits would be affected, if not wiped out completely.

L’balance necessary The relationship between potential profit and network strength is another form of blockchain security.. Too much network strength will lead to loss of profits and currency stability.

So what is the meaning of Crypto?

Imagine a situation where you want to send money to an online friend’s account. There are many ways this process can go wrong. Especially :

  • The bank or financial institution may encounter a technical error, such as machines not working well or systems malfunctioning.
  • Your account may be hacked; for example, it could be identity theft or denial of service
  • Your friend’s account or your account may have exceeded the limit.

All these scenarios are possible because there is a central point of failure: the financial institution. This is why cryptocurrencies were created as the future of money! Now imagine the same scenario between two people using a bitcoin app or any other cryptocurrency. A warning appears asking if you are sure you want to send Bitcoin. If you accept, the transaction will be processed immediately. The system authenticates the user and checks whether you have the necessary balance to complete the transaction. The payment is then transferred to your friend’s wallet.

The transaction is much more seamless as it is direct with no technical issues or procedural steps with banks. The purpose of cryptocurrencies is to eliminate all the problems associated with traditional banking.

There is no limit to the amount of money you can transfer using Bitcoin, it is nearly impossible to hack accounts since you are not using a financial institution, and there is no central point of failure. Also, international cryptocurrency transactions are faster than traditional wire transfers or any other method of transfer, which has been around since 1872.

Unlike bank transfers that take hours or even days, cryptocurrency transfers only take minutes or even seconds.

Solution

Cryptocurrency is the way for us transfers electronic peer-to-peer without the risk of a single entity takes a lot of power over the monetary system. The benefits of cryptocurrencies still beginnings.

This followers and enthusiasts will continue to sing the praises of cryptocurrencies.

This experts will continue to measure this new financial instrument against established currencies and real money. most Which should the average consumer decide? This is a good time to test the place of cryptocurrencies in your life.

As blockchain technology continues to mature and useful blockchains surface in the mainstream, necessity cryptocurrency and its place in your financial toolbox will inevitably become evident.



[ad_2]

Source link

Leave a Comment

Your email address will not be published.