Today even children can use traditional money, but not everyone can explain what a cryptocurrency is in simple words. In this article, we will tell you how cryptocurrency is produced, why it is needed and how you can earn on it.
What is a cryptocurrency?
Cryptocurrency is a unit of accounting for transactions within a decentralized payment system. We are accustomed to transfer money, make purchases or sales with the help of banks. They are centralized, that is, information about all transactions is in one hand. The fact of transferring money from one account to another is confirmed by the bank. This operation cannot be carried out twice or pretend that it did not take place, since the bank is responsible for its confirmation and security. For their work, banks charge commissions from customers and dictate their terms for using financial products.
Cryptocurrency works in a similar way, but there is no one center. Transaction information is stored on thousands of computers around the world. It is combined into blocks, blocks – into chains that are protected by cryptographic keys. This technology is called blockchain. If you change the information in any of the blocks, the entire chain will change.
Cryptocurrency is not controlled by states or central banks. It makes transaction processing independent, transparent to all participants in the network of computers included in the blockchain, and at the same time anonymous. The legal status of these transactions in many countries is due to how the cryptocurrency works. In simple words, we can summarize: cryptocurrency replaces banks and traditional payment systems, taking financial transactions out of the control of states and corporations.
What does it mean to mine cryptocurrency?
Blockchain is formed continuously with the advent of data on new operations. Processing transactions on the blockchain and selecting keys for encryption require computing power and effort. For this work, the people who do it are rewarded. The unit of this reward is the “coin” – bitcoin, litecoin, ethereum or any other. This is an example of how cryptocurrency mining works. In simple words, it can be described as the process of sealing blocks in the blockchain, which supports the existence of the payment system and the cryptocurrency itself. Mining is one of the ways to earn cryptocurrency. You can’t call it simple, we’ll explain in a nutshell why.
Since several computers within the cell are simultaneously calculating the keys, there is competition between them. The reward goes to the one who owns the best equipment and does it faster. Because of this, mining is becoming more and more expensive and energy-intensive, so individuals are less and less engaged in it. Usually people or companies get together and buy a large number of computers. They are connected to the network on a permanent basis in order to perform calculations. This is what a cryptocurrency farm or mining farm is.
The main characteristics are embedded in the very definition of what a cryptocurrency is. In simple terms, there are several key features for dummies:
Decentralization and lack of control. Information about transactions in the blockchain is stored on a huge number of servers around the world. It is equally available to all participants.
Anonymity. Despite the openness of information about transactions, users see only each other’s wallet numbers (analogue of a bank account number). The owner of the wallet remains unknown.
Irreversibility of transactions. A record of an operation in a block leads to a change in the entire chain. Therefore, the operation cannot be cancelled.
Lack of physical form. All images with coins are nothing more than symbols. This means that cryptocurrency is a computer code, it cannot be touched or put in a pocket. And a cryptocurrency wallet is a storage of information online or on a device, that is, it has nothing in common with a familiar wallet.
Despite this, cryptocurrency, like traditional money, has an issue. It can be limited or unlimited. Let’s analyze this feature of cryptocurrency in simple words using the example of bitcoin. Its source code states that the total number of coins cannot exceed 21 million. The emission affects the price of the cryptocurrency: if a new portion of coins is issued, the unit value usually falls.
Why do you need a cryptocurrency?
In 2009, humanity learned what bitcoin was, and the cryptocurrency gradually became part of the information field. Today there are thousands of cryptocurrencies. Each of them has its own characteristics and purpose.
Cryptocurrency, like regular currency, is a payment instrument. It can be used to pay for goods and services. Already today, many companies accept bitcoins and other popular tokens for payment.
Blockchains allow you to process transactions quickly and without fees. The speeds of many modern cryptocurrencies are close to or exceed those of traditional payment systems, such as VISA and Mastercard. In simple terms, what a cryptocurrency is for can be described as conducting financial transactions quickly, without intermediaries and anonymously.
Cryptocurrencies appear as tokens of blockchain projects, decentralized finance, applications, games, and so on. It can be both an internal unit of account of such a network, and a way to develop the project itself and attract new resources to it. For example, one of the most popular Ethereum coins (Ethereum) has formed a large network that serves smart contracts.
Most cryptocurrencies are not pegged to gold or traditional currencies. Their rate fluctuates based on supply and demand in the market. Therefore, coins are highly volatile, and many successfully earn on fluctuations in quotes by selling and buying cryptocurrency on exchanges. Trading is another way to use cryptocurrency.
Many cryptocurrencies show impressive growth in the long term. The already mentioned bitcoin and ether have grown tens of thousands of times since their inception. Therefore, cryptocurrency is a risky, but very profitable investment tool.
How to get cryptocurrency?
Before you can earn on cryptocurrency, you need to purchase it. There are several ways to acquire cryptocurrency. Above, we have already mentioned mining – the calculation of cryptographic keys for the blockchain for a reward. It is too costly and time consuming for beginners.
It is much easier to buy cryptocurrency for traditional money (they are also called fiat). There are three main types of platforms for buying and selling cryptocurrencies.
Exchanges – often have quite high commissions due to the large number of intermediaries, but there are many tools for trading and earning. When choosing, it is better to focus on the quality of support, ease of depositing and withdrawing funds, and the presence of a Russian-language interface.
Cryptocurrency is a unit of account of a decentralized payment system. This payment system is a transaction record that is stored on computers around the world. Data is packed into blocks protected by cryptographic keys and combined into a chain – blockchain.
Cryptocurrency has a number of distinguishing features:
Lack of physical form. In essence, a cryptocurrency is a code, not a banknote, coin or card.
Anonymity. Transaction data is available to all network users, but no one knows the identity of the owners of crypto wallets.
Irreversibility of transactions. Changing information in one of the blocks changes the entire chain, so it is impossible to cancel the operation.
Volatility. Most cryptocurrencies are not pegged to traditional (fiat) currencies or gold. Their price is influenced by supply and demand, so the rate can change tens and thousands of times in a very short period of time.
Cryptocurrency is used as a means of payment, an investment tool, as well as for serving blockchain projects, computer games, metaverses, mobile applications, and so on.
In many countries, the legal status of cryptocurrency is not fully defined. In simple terms, in Russia you need to remember that cryptocurrency is not a means of payment. You can own it, buy or sell it, but not exchange it for goods and services.
Cryptocurrency can be obtained through mining, exchanged for goods and services or fiat money. You can buy cryptocurrency for fiat on exchanges, peer-to-peer platforms and exchangers.
What can be bought with cryptocurrency and where to use it?
Initially, bitcoin was conceived as a means of daily transactions, allowing you to buy anything from a cup of coffee to a computer or even high-value items such as real estate. These plans have not yet been fully realized. Despite the growth in the number of institutions accepting cryptocurrencies, large transactions using cryptocurrencies are quite rare. However, cryptocurrencies can be used to buy various goods on e-commerce sites. Let’s give some examples.
Technology company and e-commerce
websites On the websites of individual companies selling technology products, you can pay in cryptocurrency. Examples are newegg.com, AT&T and Microsoft. E-commerce platform Overstock was one of the first sites to accept bitcoin. You can also use Bitcoin to pay for purchases on Shopify, Rakuten, and Home Depot.
Bitcoins in casinos
Online gambling establishments are a promising industry for virtual currency. The most daring business owners have been using bitcoin in their companies for a long time. Bitcoin casino benefits attract potential customers. Cryptocurrency is rapidly gaining popularity, and there are reasons for this.
Anonymity is the main plus
The User does not have to provide data such as full name, card, country and others. All transactions with digital currency take place without identity verification. This is a significant advantage for those who are very important anonymity. You only need an email address to make a payment.
A feature of establishments working with digital currency is protection against fraud. Situations with account blocking due to dishonest actions of other users are excluded. This guarantees the possibility of withdrawing funds at any time.
Bitcoin casinos are preferred by the youngest and most progressive audience. Digital currencies are used by people who are familiar with innovative technologies. Such players often make big bets, completely immersing themselves in the gameplay.
From the very beginning of the emergence of bitcoin, there has been a constant increase in the price of cryptocurrency. The continuous increase in value is an incentive to replenish the account in bitcoins. Over time, the currency on the account will “grow” significantly.
You can play in bitcoin casinos in any country and withdraw money in various ways, even where gambling is prohibited by law. Payments through a bitcoin wallet are almost impossible to track.
Other advantages of a bitcoin casino
Among the additional advantages of playing for cryptocurrency, the following advantages should be noted:
- high speed of operations;
- complete absence or minimal commissions;
- conducting financial transactions without restrictions;
- bitcoin casinos are much more generous than their competitors.
It is wrong to talk only about the advantages of playing on cryptocurrency. The bitcoin system is not without flaws. One of them is the complexity and confusion for some players to understand. Many Internet users still consider bitcoin to be an idea of scammers. However, the long-term and at the same time successful existence of the monetary unit refutes this judgment. The monetary system is great for the gambling industry.
Some luxury retailers accept cryptocurrency as a form of payment. For example, online luxury retailer Bitdials offers Rolex, Patek Philippe and other exclusive watches for Bitcoin.
Some auto dealers, from mass brand sellers to luxury dealers, also accept cryptocurrencies as payment.