Cryptocurrency, or digital money: in simple words about the complex
Cryptocurrency is a modern analogue of the money people are used to, which is created, used and exists exclusively on the Internet. In fact, it is a digital code that is transmitted from one computer to another. This digital code is obtained through the exchange of information between users business system solutions, which is collected in certain cells of the block, interconnected. When the block is completely filled, a unit of electronic currency appears, which goes to the wallet of the user who has confirmed access to the block.
This information exchange technology is called blockchain and is a single database. To make it easier to understand the essence of technology and the relationship with electronic currency, let us consider it using the example of the production process of a conventional factory.
To create any product, you need certain raw materials, which are provided by the suppliers to the enterprise. They bring their materials, put them in a large processing machine, which automatically creates a product according to its own scheme. In the blockchain, such providers are ordinary users who transfer information and drop it into a single database. This process is called mining, that is, the production of cryptocurrency.
When the recycling machine has collected all the materials in a pile, it produces a product that is sent to the warehouse 10kb app. By analogy, as a result of computer processing of information, cryptocurrency appears, which is sent to the Internet for storage.
To receive goods from the factory, the buyer must have his own warehouse, where he will take the goods for storage, and an invoice, which allows him to receive a certain amount of products. Similarly, users have cryptocurrency wallets in which they will store electronic money and an individual key, if they match, they can receive this money.
If the invoice for products complies with the established form, the plant gives the goods to the buyer and he takes them to the warehouse, after which he can independently dispose of them. The same situation is with cryptocurrency: if an individual key corresponds to a block, then digital money goes to the user’s wallet, from which any operations can be performed later.
Such a digital code record is one block, of which the entire distributed database consists of many, and which itself consists of a group of confirmed, that is, already performed (for example, payment) transactions (digital transactions). This block is a structural unit in the blockchain record chain, and at the same time – a unit of digital cryptocurrency systems called “coin” (English coin). This is where the popular cryptocurrencies take their name: Bitcoin, Litecoin, and many others. When carrying out operations with cryptocurrency, its actual exchange does not take place, but the owner of the record (digital coin) is changed.
What is a cryptocurrency for, if it has such a complex structure? Judge for yourself. Any existing state currency is completely controlled by the state. Each country has a specific tax system, principles and procedures for currency turnover. In addition, there are many intermediaries when dealing with money. For example, banks that control the spending of funds and set their rates and interest for use, exchange offices, even Internet payment systems that charge interest on transactions.
Cryptocurrency exists on the Internet, and the digital code does not belong to anyone, so it is impossible to limit its turnover, intervene in operations and set your own rates for use. For this reason, the main principle of cryptocurrency is decentralization, which means the impossibility of external interference in its circulation. The essence of the cryptocurrency is the possibility of unhindered and free trade without the participation of intermediaries.