Nowadays, many invest in cryptocurrency, and only a few people fully understand what cryptocurrency is and how it can be used.
Usually, “currency” is “money” for which you can buy goods, pay for receipts, go to the movies.
Each state prints its own money has its fiat currency.
Fiat from lat. Translated “so be it!”, And it also means “instruction” or “decree”.
In another way, fiat money is also called fiduciary (Fiducia in Latin means “trust”), symbolic, or credit.
Fiat or fiduciary money is the usual means of payment, ordinary paper bills, metal coins, non-cash money. Fiat money is any national currency such as dollars, euros, yuan, etc.
The state issues this money. It also establishes their value and indicates to its citizens (hence the translation mentioned above — “instruction”) that they must use them — pay taxes in a given currency, buy and sell goods and services for this money within a particular country.
Previously, each banknote of economically developed countries had a gold content or gold backing. Anyone could exchange a banknote of the corresponding denomination for gold.
Fiat money was required more and more, and gold mining could not have the same growth rates. States refused to provide gold for their money.
It turns out that fiat currency itself has no value.
The value of fiat money lies only because the state endowed it with such value and proclaimed that the national currency is a legal tender in the country, and established the national fiat currency’s exchange rates against the currencies of other countries.
The national fiat currency exchange rate can fluctuate and depend on many economic, political, and other factors. The state has full control over the printing of new money. With an inept monetary policy, a situation may arise when the appearance of an excess amount of money will lead to inflation or hyperinflation — a sharp devaluation of the national currency’s purchasing power. Money starts to depreciate quickly.
If the state prints money independently and independently conducts a monitoring policy, cryptocurrencies are created using a unique code.
It turns out that cryptocurrency is a digital currency created by a group of developers that exists exclusively in the virtual space, has no physical analogs, and is not controlled by states.
The question arises: if this is something virtual, created by someone unknown, what is the value of cryptocurrencies?
The value of cryptocurrencies is determined by the benefits, the area of use, and, of course, the presence of interested users.
Countries that are developing cryptocurrency regulation for a relatively new phenomenon define cryptocurrency differently. Someone sees it as property or goods, someone — a means of payment.
But initially, virtual coins were conceived as anonymous, secure, non-fiat money that can be used to pay for goods and services.
If we look at the original concept of independent digital currencies, a few specific questions arise.
How to get cryptocurrency? How to store it? Where can you use it? Why are the prices of virtual coins going up? Why all these problems if we have a real currency?
Cryptocurrencies do not have an official legal tender status (many countries have already recognized Bitcoin, but this issue is still under discussion). However, typical properties such as decentralization are attractive to users.
Any existing cryptocurrency owner is not tied to any geographic location, state, or political system.
Despite the link between courses and real money, such as the US dollar or the euro, digital money is “valuable in itself.”
Virtual money has gained popularity for the following reasons:
✔️ high prevalence;
The wallet is easy to create on any computer, smartphone, or tablet in various operating systems.
It has simplicity, speed, and openness of payment processing. The complete history of incoming and outgoing transactions is stored without time limits.
Maximum anonymity increases the independence of the payment system.
The transactions carried out are protected by a cryptographic method and are irreversible. No one can cancel a transaction that excludes fraud when paying for goods and services with cryptocurrency.
Due to the high reliability of e-wallets protected by a private key, cryptocurrency can create savings. Cryptocurrency will be useful as a universal medium of exchange, a payment method in online stores, and when paying for services provided.
Where does cryptocurrency exist, stored, and circulated?
Everything is roughly clear with fiat currency (bank money) because there is a banking system. And even if the real money is to be digitized (via an app or using electronic payment systems), you can imagine how funds are stored and transferred, but with lines of code, not everything is so simple.
It is worth talking about the next concept here — Blockchain.
If translated literally, you get a “chain of blocks.” But what are these blocks, and what is this chain?
✔️Blockchain is a decentralized system based on a distributed ledger: a kind of book in which all network operations are recorded.
It is decentralized because records of transactions or block creation are stored on all computers that support the system at the same time.
As soon as the user sends or accepts cryptocurrency, a new block is formed, written to the registry. So the chain is complete.
The popularity of Blockchain technology is growing; many companies worldwide are using this technology to optimize their operations, reduce costs, and get maximum results.
◽️The history of cryptocurrency.
Cryptocurrency gained popularity after a certain person Satoshi Nakamoto (or it was a group of people), that published technical documentation on Bitcoin in a small community of programmers and cryptographers.
It is noteworthy that his project, it turned out later, was largely based on the ideas of Nick Szabo.
He presented his work to the public long before Satoshi. It was about the development of digital money based on cryptography.
The ability to make transactions anonymously and quickly attracted scammers from all over the world. It is reliably known that Bitcoin’s popularity initially came because its qualities were highly appreciated by representatives of the Silk Road trading platform, where the trade in weapons and illegal substances was carried out.
After the law enforcement authorities managed to close the site and arrest its organizer (the arrest was made on October 2, 2013), Bitcoin managed to get out of the “shadow” and stop being associated only with black market trading among potential users.
Also, the history of the first cryptocurrency has a lot of ups and downs. New technical components of digital money have appeared on the market. However, the main thing was the gradual spread of cryptocurrency as the main competitor to fiat.
◽️Types of cryptocurrencies.
Several thousand crypto-currencies have already been created globally, which by itself formed a system of their classification, which makes it possible to understand such a variety. Each cryptocurrency is developed with a specific idea and performs particular functions.
Technically, all cryptocurrencies are divided into:
Coins have their Blockchain, and tokens use a third-party Blockchain to operate.
So, for example, PRM is an ERC20 token and uses the Ethereum Blockchain for its work.
By functionality, all existing digital coins can be divided into the following types:
✔️Cryptocurrency monetary systems.
All cryptocurrencies were exclusively monetary systems for some time, and only after that, additional blockchain opportunities began to open up.
The main task of such digital coins is to ensure secure transactions between users. They serve as a means of settlement similar to regular money but are based on decentralization and anonymity.
Examples of cryptocurrency money systems are Bitcoin, Litecoin, and many others.
✔️ Platform Coins.
Not all Blockchain systems are created only for transactions. Some projects carry a more global mission. For example, they have a platform for creating decentralized systems, help maintain authorship, sell multimedia content, and safely sell and buy a property.
All this became possible thanks to the implementation of smart contracts. A smart contract allows you to execute transactions when certain conditions are met automatically. Any conditions can be spelled out in the contract, and if the participants in the transaction fulfill them, they will automatically receive what is required.
The technology was first implemented on the Ethereum platform in 2015. Smart contracts on the Ethereum platform open up the ability to run decentralized blockchain applications.
✔️Exchanges create their cryptocurrencies.
Recently, it has become a widespread practice for exchanges to launch their cryptocurrencies.
Marketplaces are launching their coins to increase the liquidity of other coins and help them trade better.
Exchange coins have another important function — they help you save on trading fees. As a rule, if a trader has a certain number of exchange coins on his account, then he automatically takes part in the loyalty program and can count on a decrease in commissions. Some exchange coins also provide access to listing voting, dividend program, and other features.
Large and popular platforms also support such tokens, so it is not surprising that coins are also subjects for investment. Examples of exchange tokens are Binance Coin, Huobi Token.
One of the reasons why cryptocurrencies have not yet been fully introduced into the economy is high volatility. The value of coins is determined by market conditions, the ratio of supply, and demand. The immediate solution to this problem has already been found — Stablecoins are stable cryptocurrencies.
This type of cryptocurrency’s peculiarity is that it is practically not subject to volatility since its value is tied to stable, tangible assets such as gold, silver, oil, precious stones, fiat currencies.
Today, there are already several dozen cryptocurrencies with a fixed value. One of the most popular Tether coins (UDST). Its value is fully backed by the dollar, which is held in the reserves of Tether Limited. Thus, the coin value is always 1 USD.
Utility tokens give users the right to access any product or service implemented on the project.
Security tokens are digital analogs of securities. They certify the property and secure for the owner the right to pursue his investment interests.
Simultaneously, the circulation of Security tokens is carried out by the legal regulations of financial regulators such as the US SEC and the Swiss supervision service FINMA. Therefore, in essence, these digital assets are a cross between regular tokens and traditional securities.
Security tokens can give the owner the right to own shares of a company, receive dividends, or share profits.
Crypto assets are a generic term used to define a tradable or fungible asset: a good, service, real or digital contract.
For example, a digital coin intended to pay for hosting, viewing content on the Blockchain platform, and so on will be considered a crypto asset.
✔️ Accumulative (credit) coins.
Credit tokens, they are also cumulative, are often launched in addition to an existing project token. When buying a cumulative token, an investor undertakes to keep it in his account for some time and not sell it. Due to this, the token will gradually accumulate in the internal account, like interest on a bank deposit.
In most projects, the reward for storing credit tokens starts from 10% per annum or more. The terms of withdrawal are set differently — from 1 year and above.
This category of tokens gives the right to receive the project’s underlying assets, such as dividends, interest payments from profits, and company shares. In terms of their economic function, tokens-assets are similar to stocks and bonds in the real world.
✔️Bitcoin — is the first cryptocurrency, the foundation. It was created by Satoshi Nakamoto (or so the group of persons was called). The coin is designed to give people a taste of decentralization and experience the world of finance without centralized governments. Bitcoin determines the mood of the entire market.
✔️Ethereum — is one of the most famous cryptocurrencies after Bitcoin. More specifically, Ethereum is a blockchain platform for building applications. Another feature of Ethereum is smart contracts: special programs for performing the necessary operations under specified conditions. Vitalik Buterin is considered the main founder of the project.
◽️Legal regulation of cryptocurrencies.
The issue of cryptocurrency regulation has not been resolved to date.
According to many, any control is synonymous with restrictions in favor of the state.
Such legal instruments regulate the cryptocurrency market:
Taxation mainly for trading on cryptocurrency exchanges. It can also affect mining, ICO, and, in general, any operations with cryptocurrency. This method is used in the USA, Argentina, Singapore. However, some countries have opposed the tax code that exempts users from consumption taxes (Japan) or crypto business taxes (Belarus).
It involves the issuance of licenses for the exchange and trade of cryptocurrency. They are used, for example, in Japan.
Equating mining to entrepreneurial activity.
It is most often used to collect taxes and sometimes register miners, for example, in Belarus.
✔️Official registration of exchanges.
Allows you to open a cryptocurrency exchange under the control of the state with certain conditions. The latter can be providing information about users, trading, prohibition or limitation of the number of transactions for specific users (for example, who did not provide complete personal data), and others. It is used in the USA, Japan, Luxembourg, Russia, Belarus, and other countries.
✔️KYC procedure when registering on cryptocurrency exchanges, exchange sites, and wallets.
It includes the provision of personal information of users — usually a passport (including scanned images).
Different countries and resources may require other data.
✔️ Recognition of the Legitimacy of the ICO.
It is often required to reveal the identity of the organizers. It was introduced for ICO taxation and regulation. For example, Russia recognizes ICOs for taxation and control. And Belarus for investor protection.
✔️ Recognition of Cryptocurrency or specific coins as an investment asset.
It includes regulation by financial institutions, obtaining investments, and protecting investors. They are used, for example, in the United States (Bitcoin futures), Poland (futures), Hong Kong (where cryptocurrencies are equated to securities).
✔️Recognition of cryptocurrency or a specific payment as an instrument of cryptocurrency.
It involves the regulation of turnover by financial structures. The state usually receives information from banks about individuals or legal entities using cryptocurrencies. For example, in the USA (as a virtual currency), in Japan and Germany (monetary unit), in Luxembourg (means of payment), in Sweden (along with traditional currencies).
◽️How to use cryptocurrency.
To start working with cryptocurrency, the user needs to create his wallet, which will generate an address (for sending and receiving funds). Then he will need to purchase digital money. To do this, you can use exchanges or cryptocurrency exchangers.
You can then start using the cryptocurrency for its intended purpose (for making payments) or withdraw profits (trading, investing, and so on).
It is possible to become the owner of a cryptocurrency not only by purchasing it directly. To get it, you can also participate in bounty programs (receiving cryptocurrency for completing certain tasks) and airdrops (distribution of cryptocurrency for free).
◽️Ways to use cryptocurrency.
The rate and popularity of cryptocurrencies have grown steadily over the past few years, and they can be a great way to make money. All you need is to buy cryptocurrencies and sell as their rate grows. However, the possibility of a fall in the rate also exists.
✔️Trade cryptocurrency on exchanges.
This method requires professional trading knowledge and is not suitable for everyone. However, more and more new players appear on such platforms.
✔️ Cryptocurrency mining.
Quite a popular way to get more profit, but it requires a lot of investment and technical knowledge. Mining is the backbone of the blockchain. For example, mining Bitcoin’s difficulty is continuously growing and is no longer available to ordinary users on ordinary computers. It takes entire mining farms and very high electricity consumption for Bitcoin mining, which is only available to large companies.
✔️Investment in cryptocurrency projects.
With proper investment in cryptocurrency projects, you can get high returns. But you should be careful and learn to distinguish a high-quality cryptocurrency project from a fraudulent one.
Paying for goods with cryptocurrency is often more profitable than with fiat currency. Also, many stores offer additional discounts when paying with cryptocurrency.
Cryptocurrency is a new word in the world of finance. And although the first virtual coins appeared in 2009, only now the phenomenon has begun to gain breadth and depth, going beyond a small group of people.
There are still some problems in the cryptocurrency space.
For example, the problems with the speed and cost of transactions, high mining costs, and ease of use are still not fully resolved. It is not easy for every user to immediately understand how to create a wallet and make a transaction.
Since the cryptocurrency market is now emerging, it is difficult to say in advance what it will be like in five to ten years, what will remain of the original plan due to regulation. It is not yet known how the trade-off between anonymity and security that worries investors will be resolved.
Despite all the shortcomings, it is evident that cryptocurrencies and Blockchain technologies will rapidly develop and improve.
Already, a large number of people around the world use cryptocurrencies in their daily lives.
There is a growing interest in cryptocurrencies among large institutional investors who invest tens and millions of dollars in cryptocurrency.