Cryptocurrency is a digital currency that exists only in the virtual space in encrypted form, does not have physical counterparts and are not controlled by the state. For the first time this term was introduced in 2011 in Forbes magazine.
The essence of the cryptocurrency
Many people wonder if crypto-currencies have no physical equivalent (bills, coins) that makes them so valuable?
Take, for example, mobile communications. It cannot be seen or touched, and it is unlikely every person knows to whom he owes the appearance of such services. But nevertheless, we all actively use it and pay the providers. It’s the same with cryptocurrencies: they cannot be seen or touch in the real world, but users are able to pay for goods and services anonymously and without additional commissions or profit from investment.
States his opinion on this matter: consider cryptocurrencies as securities, goods or property in some countries they recognize tender, others forbid it. But initially digital money was conceived as a secure, anonymous, unregulated banking system of funds for the payment of goods and services.
The possession and trafficking of cryptocurrency
First of all, let’s see how are cryptocurrencies? With conventional currency is all clear: the government prints bills of different denomination at the mint as necessary. Cryptocurrencies are created by developers by using encrypted codes. All codes are stored in the blockchain – the technology literally can be translated as “circuit blocks”.
Blockchain – a decentralized system-the registry is a kind of e-book, in which there is a record of all cryptocurrency transactions. It is called decentralized because the recordings are stored simultaneously on all computers in the system, and therefore not subject to one. As soon as the person sends or receives funds – there is a new blockwhich is entered in the registry. Of these blocks and form a chain.
It will be clearer if you explain it schematically:
How can I use cryptocurrencies?
- “Digital stash”. The blockchain technology is very reliable, no wonder the world-famous companies take it on Board. Virtual money is harder to steal access to your wallet is the only owner. In fact, it is a personal “Bank box” – only without the middlemen they have to pay a fee for storage.
- The means of payment. Using cryptocurrency to pay for goods and services. The transactions are fast, anonymous and without intermediaries.
- An investment in the future. Virtual coins are a popular investment asset. Due to the currency appreciation invested funds can accumulate.
- Own project. We will discuss about ICO – the initial public offering of coins. This campaign is to attract investment in exchange for tokens. As far as the success of the project depends on its utility, the success of the fundraising and implementation of ideas.
Why changes in the cost of cryptocurrency?
Cryptocurrencies differ high volatility: the course has a lot of days to grow and set new records, and then in a matter of hours to lose almost half the cost. The fact that very few crypto currency is more or less fixed rate. For example, the Tether is tied to the price of the dollar, Petro – to the cost of 1 barrel of Venezuelan oil. The rest of the crypto currencies are free floating, and their rate is determined only by supply and demand.
Digital money is the cost, for example, the underlying bitcoin exchange rate consists of:
- The cost of electricity.
- Investing in hardware for mining.
- Commissions for transactions.
Demand will increase due to:
- The information boom around the cryptocurrency industry. “Easy money” attract miners and traders.
- A limited number of coins. The more coins already mined, the more valuable they become.
- Play the stock market. Because of the activities of pampero (speculators) can dramatically go up, because these tycoons massively to buy foreign currency, increasing the demand for it.
- Favorable news. The use of cryptocurrency is gradually expanding. If you receive the news that the company signed with someone serious contract or launches a new project – it boosts her confidence and is of interest to investors.
But the situation can be reversed: adverse news about the sanctions, the tightening policy of the government or hacker attacks affect the rate, causing a rapid drop and panic in the market.
What is cryptocurrency
Cryptocurrency is very similar to electronic payment systems, the main difference is the absence of a centre, which monitors the conduct of operations. Each cryptocurrency wallet is a Bank in miniature, and the user computers are part of a huge banking system.
It would seem that if cryptocurrency much, why not create your own? Not everything is so simple! Cryptocurrency is a product with open sourcethat should unite a large number of people. It needs to be interesting and promising! The Creator of the cryptocurrency goes not so much “Goodies” as it seems:
- It is the same as an ordinary user of the platform, has no right to restrict users or developers. If the person develops the normal site, only he decides what will be the design, the range and selection criteria of clients. In the world of cryptocurrency Creator can choose except that the path of development of your startup, to completely change a ready-made system without users permission he can’t.
- The platform needs to constantly develop: to launch new services, improve existing ones, to improve safety takes time, money and at least professional team. You can use the services ready platform (e.g. Ethereum) and to improve some details, but the project should be really interesting!
- The tightening of the cryptocurrency. A digital currency – a common speculation or hype. For new projects, investors are wary: the bitcoin needs to be backed up with something – goods, services or real money.
In recent years more and more of crypto-currencies appearing on the platform Ethereum. As Bitcoin is a distributed public network, but with advanced features. In bitcoin the blockchain is used only to track the transactions of digital currencies, Ethereum is to execute code of any decentralized applications.
The innovation proposed by Vitaly Balerina called Ethereum a Virual Machine. It allows you to run programs on a variety of programming languages on a single platform capable of running thousands of different applications.
The main advantages of this platform:
- Limited access – no one else will be able to make system changes.
- A high degree of data security.
- The application runs continuously and does not fail.
Old new cryptocurrency or forks
Fork – this is a common phenomenon, when one cryptocurrency branched into several varieties. After the fork, they continue to exist independently from each other. A vivid example – Bitcoin and Bitcoin to Cash.
The forks are of two types:
- Softpark. The maximum changes of the code system, there are no fundamental differences.
- Hardwork. Changing block sizes, encryption algorithms, transaction verification. Most of hardforce happen when there is a need to improve the system or there is a really promising start.
Initiate and conduct hardfor anyone, the main thing – to collect the team and bring the idea to life. Often developers prefer to remain anonymous.
Among the shortcomings hardforce should be noted:
- Cause a split in the community of cryptocurrency enthusiasts.
- No one can predict how the new fork will affect the operation of the network.
- New fork often contributes to currency volatility.
Classification of cryptocurrencies
Conditional tokens (digital assets) can be divided into two groups:
- User. Cryptocurrency payment services platform or service, as well as interaction with other participants in the system (exchange, purchase, sale). This is the most common kind of token – these include Bitcoin, Ethereum, Ripple, and other known currency. They are obtained by mining or purchase on the exchange.
- Tokens-stock. The principle of operation is the same as that for ordinary shares. Their task is to attract financing for new projects. Investors will be able to participate in the development of the company and make a profit. Unlike common stock that each holder of shares (even if he invested $ 10) has the right to vote. Produced in the course of the ICO (initial proposals of the coins), then they can be bought only on the stock exchange – issuance is not provided.
Financial regulators in many countries are opposed to ICO. According to statistics, in 2017, 60% of start-UPS, initiated the sale of a token through ICO, has ceased to exist. If a real company offering the shares, has foreign exchange reserves or assets – she will be able to pay affected investors compensation, the virtual assets can be in no way confirmed. In the end, people simply lose their investments. Experts believe that if the activities of the ICO will be monitored, projects will be checked carefully, and investor confidence will increase.
The issue of cryptocurrencies
If conventional currency is clear: in case of shortage, the mint will just print more bills, the amount of cryptocurrency in the system is strictly limited. This ensures it more or less stable exchange rate.
In most cases, for the issue of answer algorithms, but the performance of the system support the miners. These are bee-workaholic who buy modern equipment and “mine” new coins.
Each coin is assigned a complex code-problem: whose computer will be able to calculate the miner is paid a fixed reward, and the coin takes its place in the blockchain. Miners also receive a Commission for the confirmation of the transaction. The more coins already in circulation – the harder they get, the more it is valued cryptocurrency.
Mining some currencies impossible. The vivid example of the Ripple. The fact that the creation of a cryptocurrency do not use the blockchain technology, and alternative database – network nodes. The developers have determined the size of the issue: initially in circulation were issued 100 billion coins. Every 55 months in circulation goes even 1 billion. Love is not all, because in the hands of developers, a huge amount of currency. They can control the rate and size of the issue that is contrary to the initial goals of creating a cryptocurrency.
Existing cryptocurrencies can be studied using the analytical service Coinmarketcap. Today, there are more than 800 digital assets, but the most popular currencies represented in the TOP 10 ranking. The leading cryptocurrencies are determined by the following factors:
- Prospects for the development of ecosystem – development of new services and useful functions, cooperation with large companies and other.
- The stability of the exchange rate: it is clear that the cryptocurrency market has high volatility, but currency needs to demonstrate more or less stable dynamics.
- The reputation of developers.
The share of market capitalization of the 10 most popular digital currency is about 88%. The information is updated regularly, so that use of the service is very convenient.
TOP best cryptocurrency
The world of cryptocurrencies today
The demand for crypto-currencies is steadily growing. Thanks to the open source has created all the new clones of existing digital currencies. However, they are used for different purposes:
In-game currency. Popular gaming applications produce their own currency, for which gamers can buy different necessary things – artifacts, items, weapons etc. are Also available cryptocurrency for betting – they can be used to bet on the online games without paying an additional fee. Most popular development – Game Credits (Game), EnjinCoin (ENJ), HEROcoin (Play), EthBet (Ebet), IOTA.
Niche currency. This is a cryptocurrency with a limited field of use. They are created in the framework of targeted projects and become, in fact, a real means of payment for some goods and services. Not so long ago about the desire to issue its own currency, the company said Kodak is a well – known manufacturer of photographic materials. Will create a platform for photographers, where the wizard will be able to spread their work and get a KodakCoin.
Another project, made a lot of noise – Gram, token messenger Telegram Pavel Durov. The currency will be integrated into messenger, it can be used for payment of goods and services Telegram. Surprised by the car manufacturer “Mercedes” – he not only launched the platform on the blockchain, but created the project for the remuneration of drivers. While it is in the testing phase, but we already know that the project involved 500 drivers. Those who will follow the principles of Eco-Friendly driving, will receive the award in MobiCoins.
Cryptocurrency is a means of payment. As in the case with more famous counterparts – Bitcoin, Ethereum, Ripplе – new cryptocurrency suitable for making payments, long-term investments and trading on the cryptocurrency exchange.
Promising currencies 2018, experts say:
- Galactrum. Anonymous cryptocurrency to combine the advantages of Dash and bitcoin. Faster processing of transactions, improved security system. Also, members have the opportunity to vote for development and new platform capabilities.
- SingulariyNET. Currency from the Creator of artificial intelligence – robot of Sofia, created on the Ethereum platform. Primarily focused on developers AI. The issue is 1 billion tokens.
- TenX. Digital currency payment system that facilitates cash transfers. All coins were issued disposable during the ICO, the issue is not provided. The idea of developers to create a multi-currency account with an associated debit card.
- Stellar Lumen. The initial issuance of 100 billion coins. This currency is part of the Ripple project. The separation occurred because the Ripple criticized the centralization and the influence of developers on the system. The Stellar system is decentralized.
- Kyber Network. At the same time cryptocurrency exchanger. The project was launched on the platform Ethereum and aims to support multi-currency operations with the use of advanced protocols and active nodes. Emissions: 226 million coins.
Annually, hundreds of new crypto-currencies, but only few receive the support of users. Loud and highly publicized projects like Gram (Telegram) and Petro (the first national cryptocurrency, created in Venezuela) attract the attention of investors but is unlikely to compete with the top 10 cryptocurrency market.
The prospects of cryptocurrency
What is the future of cryptocurrency, no one knows. After all, they exist until there is a demand.
What factors will contribute to the increase in the popularity of cryptocurrencies:
- Scaling and improvement of the network. It’s not just about useful services and improving system security. The problem is that no one can say for sure whether the platform to cope with its task, if users will not be 2 million and 100! Another important factor in the acceleration of transaction – a cryptocurrency exchanges and exchangers are already developing mechanisms for rapid payments.
- Literacy of the population. People should clearly understand the advantages, disadvantages and risks associated with cryptocurrencies. This applies to all categories of the population, because according to statistics most often the victims of fraud be students and the elderly. Yet very few companies are willing to produce training videos or maintain blogs explaining all the issues “on your toes”.
- The increase in confidence in the cryptocurrency. The recognition of companies and large investors means a lot. The majority of traders entering the market, has no idea in what currency is better to invest. Word of mouth works: “Oh, this currency is invested Elon Musk, so it’s cool!”. The more stores and companies that provide services, will accept bitcoins and other currency – the faster the market will develop.
- Reforming the system. Initially, the virtual currency was supposed to be a quick and anonymous means of payment without extra fees. However, practice shows that because of the growing dissatisfaction with financial regulators, tax authorities and banking systems. No one wants to lose their piece of the pie! And the speculation and hype among the new projects comes a lot! Modernization of the economy and the implementation of state control within reasonable limits will increase the value of cryptocurrency in the eyes of the public.
What factors undermine the credibility of the cryptocurrency:
- Speculation and pyramid schemes. Of course, in a little-known projects that people are investing large investments are rare, but the loss of even $ 10 is not much hit on the wallet, and how much undermines the credibility of the digital market.
- Uncertain legal status. In fact, each country has their vision and attitude towards cryptocurrency system. If in Japan and some cantons of Switzerland is an official means of payment in India, China, Thailand cryptocurrencies are trying to ban.
- The actions of the government. Pressure in the form of increased regulation or higher taxes also discourages potential investors.
- Disturbing news. Every day there are news: “cryptocurrency bubble will soon burst”, “bitcoin will cost$ 1”. Market reeling, traders with a sinking heart, waiting for the “verdict”. Although experts claim that the increased volatility is normal. The cryptocurrency market operates under the same laws as regular currency exchange. There are UPS, there are downs. In the end, no one can say what will happen with government currency in 10 years, why the cryptocurrency should it be otherwise?
- A hacker attack. Hackers are always happy to find slack in the system and when it to make a profit. Hacker attack on a cryptocurrency exchange is tantamount to Bank robbery. Such an event will seriously affect the exchange rate, and on the reputation of the exchanger.
State regulation of cryptocurrencies
The cryptocurrency market is still very young. Typical scheme of regulation is not applicable. More likely to suffer the ICO (initial coin offer) – financial regulators are eyeing him very closely, knowing the potential for fraud. Of course, the presence of the legislative framework will give investors some assurance of protection and projects the possibility of normal development. Few people want to start a project that will suddenly find themselves outside the law, and to risk money and freedom.
The second issue on the agenda – operation of cryptocurrency exchanges. Anonymous transactions make it impossible to accurately calculate income/expense of the citizen, and thus complicates the process of taxation. Not so long ago, financial regulators, the U.S. forced the exchange Coinbase to give information of 13,000 customers who have made transactions with cryptocurrencies worth more than $20 000 per year. And this is only the first steps.
On the news of the forthcoming regulation of the market reacts badly. As soon as the media raise the issue of restrictions or prohibitions, investors urgently start selling the digital currency, and at a more or less positive projections frantically buying them. The result is a huge fluctuation of prices.
The common denominator of the state has not yet come. Drafting bills on regulation of cryptocurrency markets is not one month, and it is unknown what will stop the “powers that be”.
Taxation of cryptocurrencies
The country was divided into three camps:
- Acknowledging the cryptocurrency means of payment. In the EU, for example, in Germany, the cryptocurrency is charged a fixed VAT. Cryptocurrency exchanges and exchangers from tax are not exempt, miners VAT is not paid. In Japan, the funds received from crypto-currency operations are considered as income from business. People pay taxes on profits and capital gains.
- Recognizing cryptocurrency assets. The US, for example, likened bitcoin and other digital assets in relation to securities and equities. The perpetrators of cryptocurrency transactions, are required to declare income/expenses and to pay tax on capital gains. Mining is also taxed miners are required to report the market value of the mined currency.
- Banning cryptocurrency. Financial regulators are keen to keep the economy and limit the impact of cryptocurrencies. Taxation is out of the question.
Stand out countries (including Russia) which have not yet determined its position. That is, bills on the regulation were already being developed but not yet taken decisions on possible taxation. While there is no specifics, and the promotion of the ICO and mining. Most likely, the alternative currency will be treated as personal property and subject to taxes according to the rules for assets of that kind.