What are cryptocurrencies?

We live in times when the virtual world is increasingly intertwined with the real one. Technologies like VR and AR are available on an ever greater scale, and that is just one of the many forms the virtual world takes these days. A very significant element of this intertwining is the presence of cryptocurrencies.

The definition of a cryptocurrency

A cryptocurrency is, in other words, a cryptographic currency. They are talked about a lot these days, yet few people, when asked, can explain where such currencies come from and what exactly they are. Put simply, a cryptocurrency works like a virtual currency. The holder of such a currency stores it on their computer and is the only person with access to it. All transactions carried out with cryptocurrencies take place directly with the other party.

A free currency

This is precisely one of the most sought-after features of cryptocurrencies - there is no regulator overseeing their circulation. There is no central bank deciding whether their value rises or falls - only the creator decides that. All of this is possible because cryptographic currencies circulate using peer-to-peer technology. On the one hand, this means the transaction is not supervised from outside - so there is no risk that, say, someone will freeze our funds. On the other hand, thanks to blockchains, which are strong electronic security systems, all transactions are confirmed, and this is what gives the currency its value, despite the fact that it is not monitored by national or international institutions.

A few words about bitcoins

The cryptocurrency everyone is talking about right now is bitcoin. It came into being in 2008, although it is not entirely certain who its creator is. It is worth noting, however, that bitcoin’s value has risen sharply in a very short time - in 2010 it took 10,000 bitcoins to buy a pizza, while today a single bitcoin is worth more than a thousand dollars. As with any currency, this growth is not linear, but there is no denying that the overall upward trend has held.

Cryptocurrency mines

So where do cryptocurrencies come from? Creating units of cryptocurrency requires so-called mines. By solving a complicated cryptographic problem, you can create, for example, bitcoins. Bear in mind, however, that this requires computers with extraordinary processing power, so it may turn out that producing a bitcoin costs more than the value of the currency you get from mining it. Still, people who started mining bitcoins back in 2008 can enjoy quite a fortune today.

The subject of cryptocurrencies is a very broad one, though. If you want to learn more, we invite you to read the next instalment in our series of articles on cryptocurrencies.