After all, what is the purpose of cryptocurrency? Our clear answers to understand everything

You may have heard of Bitcoin and Ethereum. You have also probably heard that people are making thousands if not millions of dollars by “investing” in cryptocurrencies. But what is it? Or better yet, what is the point of cryptocurrencies?

The main goal of cryptocurrencies is to solve the problems of traditional currencies by transferring power and responsibility into the hands of currency holders. All cryptocurrencies adhere to 5 properties and 3 functions of money..

They also try to solve one or more real problems. Let’s take a look at how cryptocurrencies work and why more and more people are starting to appreciate this new evolution of money.

1. Cryptocurrencies belong to everyone

Cryptocurrencies work just like any traditional national currency, with some differences. There “paper moneycurrent is generated and regulated by a government agency that presented henceforth duty. Anyone who owns a country’s currency has an IOU issued by that country. cryptocurrency does not represent debt.

It strictly represents itself, and its value is determined by what someone is willing to give for it. The fact that a cryptocurrency is decentralized plays a vital role in how its value is determined. No one owns or regulates cryptocurrency. Its value does not depend on the political whims of the country or the monetary policy of the central bank.

Note: Some may see the lack of centralization of cryptocurrencies as a way to avoid taxes. However, like stocks and bonds, cryptocurrencies are considered an asset. In the United States, they are subject to capital gains tax on sale or exchange.

Currencies operated from a centralized ledger (ie. subjected to human manipulation and corruption. Being decentralized, the cryptocurrency works with a “distributed ledger” or a common list of transactions. This type of ledger is the heart of the cryptocurrency and brings us to the next reason why crypto matters.

2. Cryptocurrencies are almost impossible to counterfeit

Cryptocurrencies run on the blockchain, which is the distributed ledger we talked about above. Understanding blockchain technology will help you not only understand what cryptocurrency is and why it is needed. digital currency power key. The block consists of chunks of encrypted data.

“Chain” is public database in which blocks are stored and linked to each other sequentially. Each blockchain block has a specific code that distinguishes it from all other existing blocks.

This unique code is called a hash. Blocks of information added to the blockchain are added in chronological order. The new block is added right after the last created block, which also has its own unique hash. Blockchain ledger or block database spreads all over the world at the same timedistributed among thousands or, in the case of Ethereum and Bitcoin, millions of computers.

Here it is, a simple explanation of cryptocurrency. Now suppose someone wants to change one block of data in the chain. In this case, it must manipulate all blocks since a given point in history AND update all computers holding copies of the blockchain ledger. Theoretically it is possible, but the amount of energy and money required to do it successfully makes an attempt almost impossible.

3. Cryptocurrency transactions are (mostly) private

With traditional currencies issued by governments, you can make a private transaction or pay for something in person using physical views. Paper, metal, fabric and plastic currencies make up only a small part of the total number of most fiat currencies in circulation. Central authorities such as governments and regulators of the financial system promptly report and verify large cash withdrawals.

Note: Keeping track of large cash transactions is a good thing. This preserves the legitimacy of the currency and discourages criminal activities such as money laundering.

Cryptocurrencies are different. They depend on well-designed mathematics to keep track of the exchange between two people or companies. This exchange mostly done anonymously.

While the ledger or list of transactions is publicly available around the world, the parties that trade cryptocurrencies are more private. By definition, cryptocurrencies are stored electronically in digital wallets. The owner is the holder of the private key of the wallet.

currency is exchanged digitally mostly from anonymous user wallets.

Another note: While cryptocurrencies are supposed to be anonymous, advanced forensic analysis can uncover the identity of wallet owners. Some cryptocurrencies, such as Monero, are designed to resist identity disclosure.

Several companies, such as Titan Bitcoin, offer premium physical coins minted with cryptocurrency addresses and verifiable values ​​stored on the blockchain.

This is an exciting concept for enthusiasts, collectors and even gifts. He brings small digital cryptocurrency in the real world. Disclosure: This is not a paid sponsorship. The author, Data Overhaulers, nor its parent company owns Bitcoin at the time of publication.

4. The security of cryptocurrencies grows over time and in value

We previously explained that hacking or manipulation required huge amounts of energy and moneyto the point of useless effort. To go further, a hacker would need to control more than 50% of the computers that make up the “consensus” network.

A consensus network is simply a set of computers that receive copies of a blockchain or distributed ledger. For more established cryptocurrencies like Bitcoin or Ethereum, cryptocurrency networks are so large thatalmost impossible to hack.

In the early days of cryptocurrencies, it was easier to get most of the control because the crypto network itself was much smaller. This is an important fact to keep in mind for investors or users of new cryptocurrencies whose networks have not reached a relatively large size.

The smaller the network, the more vulnerable it is to hacking. An example of this almost happened with early bitcoin: a group known as BitFury brought together a large number of computers to “mine”.

What is cryptocurrency mining?

Mining is a process during which cryptocurrency transactions are verified and blocks are assigned their hashes. This requires a lot of computing power. Users who provide their computers to a network of cryptocurrency validators are rewarded (via transaction fees) paid in the cryptocurrency they support. BitFury created a mining pool or verification network that became very profitable as the value of bitcoin rose.

However, in 2014 they were close to fifty percent of the total network capacity. Although hacking and manipulating the blockchain is not their goal, they have decided to limit the size of their influence on the Bitcoin network.

The pool owners promised never to exceed forty percent of the total network capacity. They did this to protect the value of bitcoin as holders of the currency may be wary of a 51% attack from a single trader. If the value of bitcoin collapses, BitFury’s profits will suffer if not completely wiped out.

L’balance need between potential profit and network power is another form of blockchain security.. Too much network capacity will lead to loss of profit and currency stability.

So what is the meaning of Crypto?

Imagine a situation where you want to send money to an online friend to his account. This transaction can go wrong in many cases. Especially :

  • A bank or financial institution may encounter a technical error, such as a hardware failure or system failure.
  • Your account can be hacked; for example, identity theft or denial of service may occur
  • Your friend’s account or your account may have exceeded the limit.

All of these scenarios are possible because there is a central point of failure: the financial institution. And that is why cryptocurrencies were created as the future of money! Now imagine the same scenario between two people using a bitcoin or other cryptocurrency application. A warning will appear asking if you are sure you want to send bitcoins. If you accept, the transaction is processed immediately. The system authenticates the user’s identity and checks if you have the required balance to process the transaction. The payment is then transferred to your friend’s wallet.

The transaction is much easier as it is done without any technical issues or procedural steps associated with banks. The purpose of cryptocurrencies is to eliminate all the problems associated with traditional banking.

There are no limits on how much money you can transfer with bitcoins, accounts are nearly impossible to hack because you’re not using a financial institution, and there’s no point of failure. In addition, international cryptocurrency transactions are faster than traditional bank transfers, which have been around since 1872, or any other transfer method.

Unlike bank transfers that take hours or even days, cryptocurrency transfers only take a few minutes or even seconds.


Cryptocurrency is a way to earn translations electronic peer-to-peer network without the risk that one object gains too much power over the monetary system. The advantages of cryptocurrencies are still in their Start.

followers and enthusiasts will continue to praise cryptocurrencies.

experts will continue to measure this new financial instrument against established currencies and real money. in the average consumer must decide which It’s time to check the place of cryptocurrency in your life.

As blockchain technology continues to evolve and useful blockchains become more popular, need cryptocurrency and its place in your financial toolkit will inevitably become apparent.