Cryptocurrencies — what is it from technical point of view

Cryptocurrencies are usually associated with market and dramatic grows or losses. It is generally claimed, that crypto coins are only for quick transfers and rapid gains of money. However, it is an inseparable part of each blockchain.

Agenda:

• Intro,
• Definition,
• How it works,
• Why cryptocurrencies are needed?
• Conclusion.

Definition

Cryptocurrency is the digital asset, which practically is an encrypted string that denotes unit of currency.

Unlike standard currencies, cryptocurrencies are totally decentralized and used throughout native network.

This mentioned network is literally blockchain. Thanks to this technology, no middlemen track and authorize all transactions.

If you want to know more about blockchain, visit my latest article or Twitter thread:

How it works

Cryptocurrencies are literally the assets of reward to miners and validators.

In bitcoin network, like in most of proof of work consensus model blockchains, new bitcoins are added to the network by rewarding miners.

Each added block generates new bitcoins and fees from existing coins. If you want to know more about bitcoin blockchain, check my latest materials:

However, last bitcoin will be generated in 2140 year, after this date there will be only fees from transactions.

Crypto coins have to exist not only to store value or transfer it in easy way all around the world. Coins are the holdings in network.

Why cryptocurrencies are needed?

Technically, to operate through decentralized network, we have to pay for this ability. In centralized services, it is paid directly to the platform in dollars or another FIAT money.

As blockchain is distributed and literally every computer with the Internet connection can mine and validate transactions, every miner has to be paid with some kind of assets.

The best way is to use native currency, that’s why cryptocurrencies were created. For example, to operate on ethereum network and deploy some smart contracts, we can not use central bank currency, it will make no sense. Delivery of cash is controlled by government.

In decentralized world, paying in crypto is totally free, nobody can control, if some user can make transfer or not. Moreover, it is so hard to cheat, because network is transparent.

What is worth to mention, miners can not steal assets, not only because it is not possible but also cause they are rewarded with crypto coins. If they try to make some fraud, value of this coins will be decreased or even people will not trust it.

Conclusion

Cryptocurrencies are the core of decentralization. It is impossible to pay in FIAT for using blockchain, it does not work like that. Crypto coins are the essence of dapps, smart contracts or just simple mining.