What is cryptocurrency?

Cryptocurrency

Cryptocurrency is a type of digital currency whose internal units of settlement are accounted for by a decentralized payment system (there is no internal or external administrator or any of its analogues), which operates in a fully automatic mode. Cryptocurrency itself does not have any special material or electronic form - it is just a number denoting the number of units of account data, which is recorded in the corresponding position of the information packet of the data transfer protocol and often is not even encrypted, as well as all other information about transactions between the addresses of the system.

 

 In this case, cryptographic methods are based on the mechanisms of generation of the address and verification of authority for transactions with it (a digital signature based on the public key system, the order is available only to the owner of the secret key corresponding to the address), and the formation of the transaction package and its relationship with other packages (sequential hashing, which makes it impossible to change information about the amount of cryptocurrency). 

 

At the same time, there is no information in the system about the address owners or about the fact of address creation (the address can be generated completely autonomously, not even connecting to the network and not reporting anything to the network later on) - that is, there is no mechanism to make sure that the recipient address really exists or that the access key to it has not been lost. 

 

The lack of owner information is the basis for (but not limited to) the anonymity of transaction participants. Cryptocurrency payments are more similar to cash payments than non-cash payments in terms of their economic conditions and consequences, although cryptocurrencies are developed primarily for remote purchases (e.g., over the Internet).

 

 

Payment

Payment(transfer of cryptocurrency between addresses) occurs without intermediaries and is irreversible - there is no mechanism to cancel the confirmed transaction, including cases when the payment was sent to an invalid or non-existent address, or when the transaction was made by third parties who know the private key. Cryptocurrency neither at a particular address, nor in general, can be blocked (seized), even temporarily, it is always in the possession of the owner of the private key to that address. It is true that multisignature technology allows voluntary involvement of a third party (arbitrator) and implementation of "reversible transactions" that can take place against the will of one of the parties. More complex conditions (smart contracts) are implemented using special scripting languages.

 

The inherent problem of double spending in electronic payments is solved by using technologies such as blockchain, directed acyclic graph, consensus registry (ledger), etc. Transaction information is usually unencrypted and available in the public domain without registration in the system[10].

 

The term Cryptocurrency was established after the publication of an article about the Bitcoin system "Crypto currency" published in 2011 in Forbes magazine. Both the creator of Bitcoin and many other authors used the term "electronic cash".

 

The rules for the formation of a new amount of cryptocurrency (issuance) are initially set by the protocol. They usually have a lottery nature, with different factors influencing the probability of winning - the speed of solving the established task (mining) or the amount of possession of the established resource (foraging). In some cases, part or all of the declared volume of cryptocurrency is initially formed and distributed by the organizers by subscription (ICO). Usually only one technology is used, but some cryptocurrencies use combinations of them.

 

There are discussions about the economic nature and legal status of cryptocurrencies. Different countries consider cryptocurrencies as a means of payment, a specific commodity, an electronic asset, and may have restrictions in circulation (e.g., a ban on transactions with them for banking institutions).

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