Cryptocurrency is a virtual payment system with its own currencies, all transactions in which are protected by cryptography (encryption)
How cryptocurrencies are structured
Cryptocurrencies have no physical form and are stored in “electronic wallets”. Most cryptocurrencies are based on blockchain, a distributed, decentralized database technology. In such systems, data about user accounts and exchange transactions are stored in an encrypted form by all users (on all “nodes” of the network). This provides anti-fraud protection, transparency, and reliability for the entire system.
As a rule, the only source of issuing cryptocurrency is its mining by the users themselves. Mining is the earning of cryptocurrencies through the power of equipment (a personal computer or specialized mining farms). The work of cryptocurrencies is supported by users and volunteers who run the appropriate applications on their computers.
History of Cryptocurrencies
The first cryptocurrency – bitcoin (Bitcoin) – was launched in January 2009 by an author (or team) known by the pseudonym Satoshi Nakamoto. Initially, it was only used by computer enthusiasts. Later, bitcoin analogues began to appear, with different encryption methods or other features: namecoin (“neumcoin”, first released in 2009), litecoin (“lightcoin”, launched in 2011), peercoin (“peercoin”, first released in 2013) and many others.
The first usage of the cryptocurrency for real purchase was stated on May 22, 2010, when programmer from the State of Florida Laszlo Hajic transferred 10 thousand of bitcoins to user with nickname Jercos in exchange for two pizzas.
In 2011, the first bitcoin exchanges appeared on the Internet to exchange bitcoins for real currency. In the same year, bitcoin reached parity with the U.S. dollar. Due to the anonymity of the transfers, bitcoin, and then other cryptocurrencies, began to be used in drug trafficking and other illegal businesses.
Since 2012, bitcoin began to be accepted for payment by some online stores, recently including Amazon, and online services. In 2013, the University of Nicosia (Cyprus) became the first university working with bitcoins.
Over the years, more and more cryptocurrencies have become available, and their scope is still expanding today. On the wave of growing interest and speculation, prices for the most popular cryptocurrencies began to rise. The peak of the excitement came in December 2017, when the price of bitcoin reached $20,000 and its capitalization exceeded $330 billion.
At the beginning of May 2020, there were 2.5 thousand cryptocurrencies operating around the world, their combined capitalization was about $250 billion, the capitalization of the largest of them – bitcoin – about $170 billion.
How cryptocurrencies are regulated
Authorities generally seek to enforce controls over questionable transactions or to tax any transactions. In most countries, including the EU and the U.S., bitcoin circulation is not yet banned or restricted in any way by law.
Russia is currently preparing a draft law “On Digital Financial Assets. The wording, which passed its first reading in the State Duma in May 2018, defined cryptocurrencies as digital assets that are not legal tender.
Some states, such as Japan, have recognized cryptocurrencies as fully legal money since April 2017. In February 2018, Venezuelan authorities launched the first state-owned cryptocurrency, petro, as part of an effort to overcome the economic crisis and hyperinflation of the official currency, the bolivar.
Unified international norms have not yet been worked out, and experts fear that cryptocurrencies could cause another financial crisis.
The harm and benefits of cryptocurrencies
At the moment, the energy costs resulting from the use of cryptocurrencies are comparable to the energy consumption of countries and industrial sectors. It’s not just about mining, but also about transactions. And some doctors equate the fascination with cryptocurrencies with a gambling addiction that requires treatment.
On the other hand, the advent of cryptocurrencies has given the world a new data technology – blockchain. Today, it is increasingly being used in fields other than finance, from science and medicine to environmental and social projects.
