How do cryptocurrencies work, what is it and what is their benefit for you and me?

How do cryptocurrencies work, what is it and what is their benefit for you and me?

How do cryptocurrencies work, what is it and what is their benefit for you and me?

Modern society is developing in a direction that provides for the liberalization of all spheres of its life. For a long time, these trends, changes did not concern one of the pillars of the way of life in all countries of the world – money. The usual scheme, assuming the presence of a monopolist (the treasury of a certain country) in the release of funds, remained several centuries from the moment of transition from gold, copper and silver coins. Therefore, an alternative to them is the cryptocurrency what it is and how it works – now we’ll figure it out.

But in our time there are technologies that can overthrow this system as unnecessary – this blockchain and major cryptocurrencies (including bitcoin and others). Most likely, many probably already heard about such inventions. They simply have little idea how this works and whether this idea is fraud.

When and why did it appear?

It is worth noting that the first electronic money was just a substitute for the real ones, having appeared at the dawn of the formation of the Internet. Cards and transfer systems (like PayPal) were breakthrough technologies for their century, but they used the same concept and currency – dollars, euros, rubles. Moreover, it is impossible to consider such services as electronic money, because the units of calculation are already existing currencies.

In 2009, the first cryptocurrency appeared: a start was made by someone under the name Satoshi Nakamoto released his software, which connected all computers to a single network and allowed them to exchange transactions among themselves. But Bitcoin did not immediately arouse interest among the general public – privacy, anonymity and an incomprehensible principle of work created the impression of a currency for shadow structures and organizations. Some already made money, but most just didn’t knowBitcoin, what is it and how does it work.

In addition, to be honest, this is exactly what this virtual currency was in part. Further, more complex developments like Ethereum followed – second-generation currencies that significantly exceeded Bitcoin in functionality. In the future, such developments can not only replace money, but also save the world from jurisprudence with the help of encrypted certificates.

But before discussing the most exciting developments in the world of virtual money, it is worthwhile to reliably understand the principle of their work. After all, many still do not know what kind of crypto money Bitcoin is and how it works. But is it not a scam. Most likely, the gold coin analogy is best suited for this. Because they have more in common than they seem at first glance. So, cryptocurrency for dummies, what is it and how is it similar to the currencies of the past:

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The amount of gold, as well as the number of bitcoin, ETH and other virtual money is limited. And this is the answer to the question of what the crypt is provided with. In addition, each system initially embeds a limit of coins, which will circulate further. This protects you from emissions, when the decision of the head of the national bank or the Fed to print more money will sharply reduce the value of your savings. The types of cryptocurrencies and their course are not interdependent – the technology itself does not allow them to fall, and the creators are allowed to release in excess of the previously established measure.

Gold, like virtual currency (cryptocurrency), cannot be faked. All developments use absolutely strong encryption, excluding cases when you will be paid with fake coins.

You can how to get gold yourself (mining) , so buy from someone and his value will not change.

Why does virtual money work that way

But why does virtual money work that way, and not otherwise. The algorithm for their functioning is quite simple:

A public transaction database is created, which is stored on each computer.

For each cryptocurrency transfer, a unique key is used, which is created once.

Each translation remains in the database and is duplicated many times. Just this ensures the safety of money. In addition, the functioning of one computer from the system is sufficient for this. At the moment, there are millions of them and the number continues to grow.

Why is cryptocurrency needed? It is up to the users to decide – the creators only gave the world a very interesting tool and an alternative to traditional money. Many still do not know how the crypt functions and what it is in simple words. In Russia, the legislation also prevented its distribution, but it’s worth talking about it in a separate section .

How are coins mined? How can I earn on cryptocurrency?

Is it possible to earn on cryptocurrency? Each of them suggests the ability to mine coins “from the air” – this is the so-called meaning . The fact is that a public transaction database requires huge computational resources to create data blocks. These capacities are provided by miners and data centers, receiving a fixed fee from the system.

In addition, there are a lot of ways to earn money and alternatives to the already obsolete development of Bitcoin cryptocurrency:

storage – promising developments are always in demand and grow in value;

trade on exchange – there are complete Forex analogues for Bitcoin, Litecoin and others;

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the provision of services and goods (who already earns – pdf );

building any traditional business model using cryptocurrencies;

exchange operations;

investments in mining companies;

the use of cranes (advertising platforms with rewards);

cryptocurrency outsourcing;

receiving donations .

It is worth noting that in almost no country there is an existing taxation mechanism for cryptocurrencies. Since access to the wallet is available only to the owner. Although most governments already know what cryptocurrency is in simple terms. Moreover, not a single sanction of a court or other power structure can take away funds. It should be noted that the ruling circles do not yet too understand how to control cryptocurrencies.

Advantages and disadvantages

There are plenty of positive aspects of any cryptocurrency:


Cryptocurrency emission is not possible (not all apply to it) – the number of coins is pre-set by the algorithm (for example, bitcoin) and cannot be changed even by the creators themselves.

Full security against fake.

Independence from a certain center (reserve fund, bank).

Protection against bank collapse or other decisions made by third parties.

Transaction speed: regardless of the destination, the speed of each operation with any wallet is several minutes or less.

The ease of opening cryptocurrency wallets. You can keep as many accounts as you like for various purposes and not pay anything for it.

The absence of restrictions on the number of operations, their frequency and other features that may differ in fiat currencies.


Do not forget that the features of the blockchain technology itself also create the disadvantages of the bitcoin cryptocurrency – these are:

The irreversible nature of operations.

Losing a backup or password robs you of funds.

Theft of a wallet or password backup leads to a loss of money.

In addition, the rate of some cryptocurrencies may vary. As a result, while the market is guided by general trends, this may lead to unexpected depreciations.

Legislation of countries in relation to cryptocurrency

The views of various states in relation to cryptocurrency are different:

in Russia – there is a draft law on equating cryptocurrencies with quasi-currencies, that is, counterfeiting, a number of major bitcoin sites are prohibited by Roskomnadzor;

European Union – transactions with cryptocurrencies are legal for individuals and legal entities, are not taxed by decision of the European Court;

Germany – cryptocurrencies are additionally equated to private money, completely legal;

Switzerland – is equal in rights to foreign currency;

Japan – Bitcoin has become legal tender, mandatory to accept on a par with the yen;

China – banned for legal entities and companies, but legal for private use (for example, for mining);

USA – in fact, cryptocurrency is equal in rights to foreign currency, there is a draft Bitcoin taxation;

Norway, Singapore and France – recognized as an exchange asset – are not taxed, but they are subject to payment in exchange transactions.

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Most developed countries use the policy “you can’t ban – head.”

So far, many countries provide a full range of opportunities for the development of a business tied to cryptocurrencies. This position is due to the understanding that he would have existed in the shadow sector anyway.

A number of countries (including the Russian Federation) argue for a negative or skeptical attitude towards means of payment with the possibility of financing terrorism. As well as causing damage to the state economy. Although bitcoin itself is not involved in this. What it is and how events will unfold is unknown. In fact, it is practically impossible to physically track the transaction and the people who committed it. It is also impossible to block a money transfer. It is worth noting that therefore it is believed that cryptocurrency is an unregulated sector of the shadow economy.


Cryptocurrency is a new word in the modern financial world, capable of modifying the economy for the better. In addition, despite the large number of difficulties with their implementation, they are of great interest to society. As a result, in fact, such a calculation format is more like a reference equivalent of labor. And money is what they are. Therefore, more and more people understand what crypto is for.

Moreover, the rate of such currencies cannot be regulated by a third party – they depend purely on the balance of supply and demand in the market. Inflation is also impossible. It should be noted that the authorities of countries are aware of the degree of freedom provided by cryptocurrency. And this is a really new word in economics. As we see, the legislation of most countries is loyal to them or fully supports their implementation. Many banks also offer services for working with this type of funds or develop their solutions based on blockchain technologies.

Cryptocurrency earning techniques are diverse. Traditional business building models are possible using Bitcoin, ETH, Litecoin, or your own.

Sale of goods and services, trade and exchange operations, sale of content. In addition, other opportunities, combined with the demand of the audience, make them very interesting and attractive. In addition, an increasing percentage of the population understands how promising, safe cryptocurrency Bitcoin is. In addition, there is an understanding of how it can be used for their own purposes.


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