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What is Cryptocurrency?

26 November 2021


Cryptocurrency in plane words


Cryptocurrency is the result of computer calculations, an electronic database storing information about how much money a user has and where he transfers it. Cryptocurrency is stored in special electronic wallets.

The first cryptocurrency is Bitcoin. There have been attempts to create digital currency before Bitcoin. However, they all failed because no one trusted these projects - their currencies were too easy to fake. Bitcoin was able to solve security problems using blockchain technology. 


Blockchain technology behind cryptocurrencies


Blockchain is a digital system similar to a book containing all the transactions inside the system. Every Bitcoin owner has an independent, but an identical copy of this digital book. So if somebody tries to fake an account balance, the blockchain will instantly deny manipulations, as the system has numerous secure copies of itself to validate its own true state. Neither banks, nor the government, nor the creator of the cryptocurrency can fake records inside the blockchain. In other words, there is no single controller in the blockchain, the system is controlled by all participants. 


Alternative Cryptocurrencies


In addition to the famous Bitcoin, there are quite a few popular cryptocurrencies. One of them is Ether, the currency of the Ethereum blockchain platform, created by Vitalik Buterin - the youngest cryptocurrency billionaire in the world. Born in 1994, he has long been considered a cult figure in the cryptocurrency community.

Some cryptocurrencies "explode" unexpectedly for their creators. The popularity of the "meme" cryptocurrency Dogecoin, which came to it after a flash mob on Reddit, shocked its creator Billy Markus. He himself left the project a few years ago and therefore could not get rich on the tokens that had risen in price in 2021.


Crypto vs Fiat


Today, cryptocurrencies are gradually becoming a serious competitor to the traditional financial system. Ordinary fiat money issued by central banks is not backed by gold or other precious metals. Central banks can print as much money as they want. Too bad it won’t make anybody richer - the value of fiat money decreases with each printed bill. So the long term trend for any fiat currency - is losing its value little by little, it is called inflation. 

Cryptocurrency, in comparison with conventional currencies, is deflating. Its quantity is strictly limited by mathematical formulas, and not by the interests of states. A certain final amount of any resource creates scarcity, which leads to a price increase over time. So crypto value goes up in the long term.



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