Cryptocurrency

 

Definition of cryptocurrency

Cryptocurrencies are currencies that are digitally traded and stored using blockchain technology, or blockchain, and are protected by cryptography. Most digital currencies are managed through decentralized networks and are not backed by governments or central banks.

The emergence and rise of digital currencies

The earliest known digital currency is Bitcoin, which was created by an anonymous individual, or group of individuals, by the name of Satoshi Nakamoto on January 3, 2009, after issuing a founding statement titled "Bitcoin: An Electronic Cash Point ready". System". .

It took several years for Bitcoin to achieve notable success, it took a while until early 2011 for its value to rise above $1, then gradually increase to a value of tens of thousands of dollars today.

The value of many currencies today exceeds one thousand dollars, and the total market value of digital currencies at the end of 2021 is estimated at 2.3 trillion dollars, thus becoming an integral part of the global financial system.

Many digital currencies today are used to transfer money, especially international currencies; To provide high traditional transfer fees through banks and financial institutions, in addition to its main advantage of anonymizing the sender and receiver, many companies buy digital currencies as an investment with the aim of making a profit by selling them later when their price

How digital currencies work

goog_1961751736Most digital currencies are based on blockchain technology, which is based on the storage of a database of ownership and currency transfers on the devices of different members of the network, which eliminates the need for an intermediary or a central entity that organizes and executes the transfers. 

 The idea of ​​digital currencies is not based on requiring banknotes or coins used in national currencies to determine the ownership or balance of each person, but rather on recording transactions and transfers between members of the network, and distributing information on transfers. and new balances to all. network members. 

 Each coin also has a method by which new blocks (new copies of the transaction history) are validated and created, called a consensus mechanism, whose objective is to prevent the same money from being sent more than once, or spending doubled, to protect the coin network against hacking and to create PoW coins, which is based on the need to spend significant computing power to create blocks, and Proof of Stake (PoS), which is based on the need to document a number of people holding a certain amount of currency for the new block before approving and distributing them.

Controversy over digital currencies

Fake value, as many economists and influential figures believe that most digital currencies have no real value, and sooner or later a bubble will burst, causing huge losses to their owners.  On the ground, making it unable to expand and contract based on the state of the economy.

 Lack of oversight and transparency, as governments are unable to monitor, seize, and confiscate funds transferred using digital currencies, making them an ideal way to conduct illegal transactions and activities, such as money laundering, drug trafficking, financing of terrorism and others. 

 Power consumption and e-waste, especially for currencies that use a proof-of-work mechanism, as mining and the computing power it requires consumes a large amount of energy, sometimes equivalent to the consumption of entire countries for a single currency, and miners often turn to countries with cheap energy prices as a result of unsustainable methods (such as coal), as well as the need for miners to constantly upgrade their machines and dispose of old ones, leading to a generation significant amount of electronic waste.

Types of digital currencies

Coins or coins are currencies that are operated using their own blockchain, examples include; Bitcoin, Ethereum and Solana.

   Tokens are coins that are run by smart contracts on other blockchains, such as Uniswab and DeCentraland, which run on the Ethereum blockchain.

   In addition to these two types, the important type is stable digital currencies, whether they operate on their own blockchain or not, which are currencies whose value does not change based on supply and demand, but instead has a fixed value associated with it. the value.  of a national currency, the purpose of which is to facilitate the use of digital currencies to make Payments and transfers without fear of currency depreciation or appreciation after transactions, such as; Tether, USD Coin and Dai, which are equal to 1 USD.