What is cryptocurrency?

For Beginners

What is cryptocurrency?

Cryptocurrency is a decentralized form of digital money that is used to make payments in a worldwide digital environment. The first crypto ever created was Bitcoin, and it is still the most popular and demanded coin on the market. It may seem to some that digital coins do not differ from e-wallets, as they are used for similar purposes. However, that's not the case. Cryptocurrency is a unique field with its own operating principles and distinctive features.

Traits of Crypto

  1. Decentralization: The value of cryptocurrencies cannot be affected by the central bank or government. The information of these virtual assets is stored by computer nodes, which are based on a special blockchain technology, granting more freedom to users.
  2. Security: This may sound strange, but the absence of a main server does not weaken the security of the whole crypto system. On the contrary, the direct exchange of information between users is a more safe method. Even if some servers go down, it won’t lead to a loss of data.
  3. Accessibility: Digital coins can be purchased by anyone who has access to the Internet, regardless of their citizenship, financial situation, or any other aspect. What’s more, cryptocurrency can be used in any country, at any time, and under any circumstances.
  4. Trustworthiness: It is no secret that most payments by credit card can be returned under certain conditions, giving time for fraudsters and scammers to work their schemes. When it comes to crypto payments, absolutely none of them can be reversed. This may seem to be a big problem, but in fact, this feature ensures that 100% of all trades are fair. Moreover, there is almost no chance of accidentally sending crypto to the wrong person because the public key of a person’s wallet is a long combination of numbers and is very difficult to confuse with someone else’s.
  5. Privacy: When you purchase or transact cryptocurrency, you can be sure that your investments are protected, and all this is thanks to the blockchain system, the key working principles of which are covered below.
  6. Profitability: Everyone has heard of a giant leap in Bitcoin price, which has brought some investors millions of dollars in profits. Many people look to invest in cryptocurrencies because this is a risky but also a very lucrative investment. If you stumble across a successful project, you can easily multiply your capital.

A combination of these features can make crypto the main currency of the future. All the advantages attract more and more users, leading to the rapid development of this new field.

How was cryptocurrency invented?

The history of the creation of digital coins began in 1990, when two American cryptographers, David Chaum and Stefan Brands, set up a company called DigiCash. The product that was released under this brand was the eCash monetary system. David and Stefan were the first to implement a principle of cryptographic data protection. The eCash, however, was still based on the centralized system, which led to the bankruptcy of the company. 

The story of eCash inspired the creation of the first blockchain projects, such as B-Money and Bit-Gold. These resources are now considered the first prototypes of cryptocurrency. In 2007, Satoshi Nakamoto started working on a completely decentralized blockchain system by correcting the shortcomings of previous projects’ operating principles and developing the world-famous cryptocurrency, Bitcoin. The term “cryptocurrency” is a combination of “currency” and “cryptography” - the technology of encrypting the original message into a secret code for the purpose of user safety. Bitcoin officially started its development in 2009. Four years later, in 2013, Bitcoin has grown from $60 to $1,100. From that point on, this digital coin started gaining popularity and skyrocketing in price.

Do cryptocurrencies differ from tokens?

Some users tend to confuse cryptos and tokens or even accept them as synonyms. However, it’s not that simple. We’d like to briefly explain the difference between these two elements of your digital balance. 

Basically, the only similarity between tokens and cryptos is that they are stored digitally and through blockchain technology. Also, they each have a different purpose. Tokens are something like stocks, but in a digital world. Their owners can receive dividends, hold a stake in the company, or get certain goods and services for free. The reason why tokens offer all these privileges is their flexibility. When you have official permission, creating any amount of identical or different tokens is possible. Digital coins, however, can be used for anonymous transactions, protecting savings from inflation, and even growth of capital. 

The basic concept of a crypto wallet

Cryptocurrency wallet is an indispensable tool, with the help of which investors can keep private keys, which give you actual access to all your cryptos, security, and sign transactions. Nowadays, users can purchase a hardware wallet, and a special USB thumb drive that records all the private keys, or use the services of safe and time-checked online crypto wallets, such as Metamask, TrustWallet, Electrum, etc. 

What is a blockchain, and how does it work?

Blockchain is a kind of ledger which uses computer nodes to store all information about the purchase, sale, and exchange of a certain digital currency. Blockchain is a very safe, stable, and transparent system at the same time. Every user can view any online transaction, but they won’t have access to any information that could disclose your identity. What’s more, all the data is kept in special blocks, which are linked with each other but are all unique. This is why none of them can be edited or forged. Blockchain allows users to easily and safely carry out transactions with each other without the involvement of intermediaries.

Blockchain is known as an honest and secure system because it is based on the consensus algorithm. This method requires the involvement of all the participants of computer nodes, as each computer periodically verifies the correctness of the actual data and confirms the genuineness of all transactions.

Public and Private Keys: What are they?

Such things as public and private keys play a significant role in a blockchain system. A private key is a long combination of numbers that gives you access to all the coins you own and the right to dispose of them as you like. Guessing the right combination and hacking your account is an impossible task, as the chain of numbers is so long that going over all the combinations would take decades of continuous operation. However, the public key is similar to your card number, as you can share it with anyone, for example, in order to receive payments. Your public key can be seen by every member of the Blockchain, and it won’t affect your level of security. To sum up, a private key is the only tool that can allow you to confirm transactions and enter the wallet, whereas the public key can be given to anyone. 

The principle of cryptocurrency mining

Crypto mining is a process during which the computers of participants of the decentralized node solve complex puzzles and math problems in order to ensure that the Blockchain functions in a stable manner. However, at the same time, users generate Bitcoins, Ethereum, and other currencies as a reward for their actions. Most of them consider it as a potential way to make money. However, this method has its pitfalls. First of all, you need a computer with a powerful video card, so these tools should be considered an investment. Most miners even create mining farms, which contain hundreds and thousands of video cards. Another aspect is the electricity cost. Crypto mining is a laborious process, and your computer will constantly be operating at full capacity. If you have weighed the pros and cons and it turns out that you can quickly compensate for such an investment, then it is worth giving this method a try. 

Cryptocurrencies on CoinDepo

The CoinDepo platform supports major cryptocurrencies such as Bitcoin, Ethereum, XRP, Litecoin, and Bitcoin Cash. With CoinDepo, you can safely store your crypto assets in Compound Interest Accounts and earn from 12% to 18% per annum + compound interest, depending on the type of interest account you choose. Today, without exaggeration, this is the best offer on the market.

You can also borrow major stablecoins from CoinDepo against your crypto portfolio without opening a collateral account, which is a unique service that has no analogs in the world of digital assets.

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