What is cryptocurrency?

What is a cryptocurrency?

Cryptocurrency is a kind of digital currency, the accounting of internal accounting units of which is provided by a decentralized payment system (there is no internal or external administrator or any of its analogs) , operating in a fully automatic mode. By itself, the cryptocurrency does not have any special material or electronic form – it is just a number indicating the amount of data of accounting units, which is recorded in the corresponding position of the information packet of the data transfer protocol and is often not even encrypted, like all other information about transactions between system addresses.

At the same time, mechanisms for generating an address and checking authorization for operations with it are based on cryptographic methods (a digital signature based on a system with a public key, the order is available exclusively to the owner of the secret key corresponding to this address), as well as the formation of a transaction package and its relationship with other packages (sequential hashing, which makes it impossible to change information about the amount of cryptocurrency). At the same time, the system does not have any information about the owners of addresses or the fact of creating an address (the address can be generated completely autonomously, even without connecting to the network and not reporting anything to the network in the future) – that is, there is no mechanism to make sure that the recipient’s address really exists or that the access key to it is not lost. The lack of information about the owner is the basis (but not limited to) the anonymity of the participants in the transactions. In terms of their economic conditions and consequences, cryptocurrency payments are more similar to cash payments than non-cash payment options, although cryptocurrencies are developed primarily for distance purchases.

How is cryptocurrency different from digital currency??

Unlike fiat currency (legal means of payment, which includes most paper money), digital currency does not have physical equivalence stored in the form of cash or gold. It consists of arbitrary numbers stored in a user account.

Like regular cash, digital currencies are accepted as a means of payment and can be used to purchase goods and services. They can be transferred between accounts, and they can also be exchanged for cash.

Cryptocurrencies are a type of digital currency. They have arisen to address the problems of centralization, confidentiality and security problems associated with conventional digital currencies.

What is Bitcoin?

What is a bitcoin?

Bitcoin is a peer-to-peer payment system that uses the unit of the same name to record transactions. To ensure the functioning and protection of the system, cryptographic methods are used, but at the same time all information about transactions between system addresses is available in clear text. The minimum transmitted value (the smallest amount of crushing) – 10−8 bitcoin – was called “satoshi” – in honor of the creator Satoshi Nakamoto, although he himself used the word “cent” in such cases .

An electronic payment between two parties occurs without intermediaries and is irreversible – there is no mechanism for canceling a confirmed transaction (including cases when the payment was sent to an erroneous or non-existent address, or when the transaction was signed with a private key that became known to others). Nobody can block (arrest) funds, even temporarily, except for the owner of the private key (or the person to whom it became known). But the provided multisig technology allows attracting a third party (arbiter) and implementing “reversible transactions”. With the help of a special scripting language, it is possible to implement other variants of smart contracts , but it is not available from the graphical interface and is not Turing complete, unlike newer blockchain systems.

Prepared using resources

  1. Best library Wikipedia.org > Cryptocurrency, Bitcoin
  2. Rating forex broker Trade-leader.com What is cryptocurrency