Introduction to Cryptocurrencies
What exactly is a cryptocurrency? Sources state that it is a kind of virtual monetary unit operating within its own accounting system. This explanation, however, raises more questions than it answers and may suggest that the money in our bank accounts could also be called cryptocurrency, which is of course not true.
Blockchain technology, on which cryptocurrencies are based, is quite simple and guarantees freedom from most restrictions imposed by banks or the state because it relies on a peer-to-peer solution (between users, without intermediaries). As a result, the system that supervises and verifies transactions is eliminated.
Each cryptocurrency unit can be exchanged for any other currency. The possibility of purchasing goods in online stores in exchange for this type of virtual money is also becoming increasingly widespread.
A Brief History of Cryptocurrencies
It can be said that the history of cryptocurrencies began as early as the 1980s, thanks to David Chaum. The revolutionary algorithm he developed enabled the effective encryption of numerical data and, moreover, even the alteration of its content. An improved form of this algorithm is the basis of today’s cryptocurrency system.
Although attempts to introduce such a monetary solution had already been made toward the end of the 20th century, the first cryptocurrency to achieve worldwide success—named Bitcoin—was generated for the first time in 2009. When searching for information about the creator of this cryptocurrency, one most often comes across the name Satoshi Nakamoto; in some circles, however, it is believed that this pseudonym conceals a person whose real name is Craig Steven Wright.
How Is Virtual Money Stored?
Although cryptocurrency units do not exist in physical form, they must be stored somewhere. Their storage is possible thanks to the existence of what is known as a virtual wallet. Each user’s wallet is created upon their first contact with the system, and in addition, two codes are assigned to each user—public and private.
Put simply, the public code is a system-generated “business card” for the user, while the private code enables transactions to be confirmed—and therefore carried out—securely. Thanks to appropriate encryption, it is impossible to counterfeit a cryptocurrency or reuse the same unit.
The Main Player in the Market
Currently, the number of existing cryptocurrencies exceeds one thousand. Despite this, one of them stands out from the competition—the aforementioned Bitcoin. It accounts for almost half of the entire cryptocurrency market, whose estimated capitalization (the amount of money invested in it) is 168 billion dollars.
Bitcoin began its stock-market career rather unpromisingly—its price after the first day on the market was only $0.00077. In the following years, the situation of this cryptocurrency changed dramatically—its maximum value reached $20,000, which happened in December of the previous year. Today, the price of Bitcoin is approximately 10,000 US dollars.
Besides Bitcoin, cryptocurrencies whose capitalization already exceeds 5 billion dollars include Ethereum, Bitcoin Cash and Litecoin. Unlike Bitcoin, some cryptocurrencies, in addition to serving as a means of payment, may represent the value of a given company, somewhat like securities.
How to Obtain Cryptocurrency
There are several ways to become a cryptocurrency owner. One of them is known as cryptocurrency mining, which, from the perspective of an individual user, is not profitable. Mining is based on solving cryptographic tasks, producing a certain string of characters. If the resulting string is correct, the user receives a certain pool of currency units as a reward.
The matter is not as simple as it may seem, however—cryptocurrency mining requires computer hardware with enormous processing power, which is expensive in itself and also consumes huge amounts of energy. Therefore, the question arises...
Where to Buy Cryptocurrencies
There are several places where cryptocurrencies can be purchased—all of them, of course, can be found on the Internet. The simplest—but also the most expensive—solution is to make a purchase in exchange for, for example, Polish zlotys at an online exchange office. An alternative option is to buy units on a cryptocurrency exchange, which operate analogously to their traditional counterparts. The final, riskiest option, while also allowing you to find the most favorable offer, is to purchase cryptocurrency directly from another user. Offers of this kind can be sought, for example, on Internet forums.
Cryptocurrencies are a technologically advanced solution that enables various transactions to be carried out over the Internet, and they may also be a reasonable investment idea. Will they be introduced for global use and ultimately completely replace money in the form in which we currently use it? Such a revolution seems possible, but for this to happen, a revolution must first take place in people’s minds, along with a full understanding of this technology.