(ORDO NEWS) — Is it money or not? Let’s talk about how cryptocurrencies work.Cryptocurrency is, first of all, a currency, like any other.
But unlike, for example, the dollar, it is protected by mathematical algorithms, and not by people (as in a bank). The most popular and first created cryptocurrency was bitcoin, launched in 2009. At the time of writing, 1 bitcoin is worth 2.9 million rubles ($37,654).
The owner of such an asset can use it to buy goods at a price in a specific cryptocurrency (for example, bitcoin), which is determined by the current exchange rate quoted on various exchange markets.
What is a cryptocurrency
The concept of cryptocurrency can be explained simply by the example of physical everyday things. For example, imagine that a cryptocurrency is a bicycle.
Suppose you have a bicycle and you give it to a friend. The transaction takes place physically and directly from one person to another. There was no third party (witness) involved in this transaction. Now you don’t have a bike, but your friend has one. You are no longer in control of that particular bike.
Let’s digitize the bike. You give the digital bike to a friend again. However, now it is impossible to know whether you sent it in its original form or made several copies and gave them to different people.
To control such actions, there is a “ledger”. The registry is a database that keeps track of accounts and all transactional activity that occurs with accounts. In the case of a digital bike, the registry will make sure you don’t duplicate it and fool a friend.
In a physical bank, there is only one centralized registry, to which only the bank has access. In the case of cryptocurrencies, each client has its own ledger.
What is blockchain
One of the main features of bitcoin and all virtual currencies is that the decentralized network uses a public ledger called “blockchain”.
It is open source and allows any cryptocurrency user to track transactions from end to end. On the other hand, no one sees how two banks agree among themselves that one transaction will take place – people can just look at their bank account and see the withdrawal of a certain amount at a certain time.
If the owner of a cryptocurrency stores it on a computer, he must always remember that there is no central company with a backup copy of your wallet. You need to make a backup copy yourself – otherwise, a hard drive failure will destroy all the cryptocurrency stored on it.
What is bitcoin
The creator of bitcoin, who is called Satoshi Nakamoto (although his nationality and country of residence are unknown), is still unknown, although many have recently been trying to find him.
On the basis of bitcoin, most of the well-known cryptocurrencies, alcoins, are built. Therefore, their rate is more or less tied to the rate of bitcoin.
The only cryptocurrency that can compete with bitcoin is ether (Ethereum, ETH). Many applications are built on the blockchain of this cryptocurrency, so it, along with bitcoin, is considered one of the most promising, as it has practical applications.
Who are miners and why are they needed
The Bitcoin system operates on a P2P (peer-to-peer) network. The P2P architecture is similar to file-sharing networks that allow people to share all kinds of data freely, including copyrighted music, movies, and more. It helps to share and exchange information without the intervention of any centralized government agency.
Bitcoins are created by a group of people known as “miners”. Miners are individuals or companies that own the managing computing power and are tasked with issuing new bitcoins into the network when a user makes a request. Anyone can become a miner.
Miners store copies of the blockchain, protecting information from loss or forgery. They confirm transactions and verify them. After completing this task, the miners are rewarded in bitcoins, which also serves as an incentive.
But how long can new bitcoins be created? Cryptocurrency creator Satoshi Nakamoto introduced a limit of 21 million.
After this number is reached, the mining potential will dry up, and the number of bitcoins will become static. As of 2022, just over 18.9 million bitcoins have been issued, so the limit is already close.
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