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The essence of cryptocurrency and why it will grow in price

The essence of cryptocurrency and why it will grow in price

Many have heard about such an asset as cryptocurrency, but many, especially "great" economists and financiers, especially conservative approaches, look at it with great pessimism, claiming that it is not secured by anything as a monetary unit, and is just a "soap bubble".raquo;.

is cryptocurrency really a soap bubble

We will not particularly refute someone's point of view, but we will give a few simple facts on the basis of which there will be a reason to think about the attractiveness and prospects of this financial instrument.

The currency began to develop about 9 thousand years ago.

About 3 Thousands of years ago, people chose gold and silver as the means of exchange in commodity relations. It has always been valued because it was scarce and difficult to find, process and mint, it was used as a rare means of decoration and had special physico-chemical properties.

Then, around 680 BC, it became money when coins of the same weight began to be minted.After that, governments began to issue their demonstration banknotes, which were, in fact, claims for the gold they had available, and their price corresponded to the value of the gold itself, into which everything was always converted.

gold is comparable to the dollar when commodity exchange operations

After World War II, on At the Bretton Woods Conference in New Hampshire (USA), it was decided to link the currencies of the main countries of the world at a fixed rate to the US dollar. And since most of the world's gold was stored in American vaults, the US dollar was backed by gold at a fixed rate of $35 per ounce. This created a system in which the currencies of the world were effectively backed by gold through the US dollar.  

But in 1971, US President Richard Nixon announced that foreign countries would no longer be able to convert their dollar assets into gold. This unexpected step by the United States became known as the Nixon shock.

Practically, President Nixon, with one of his statements, created our current monetary system in which no currency is backed by gold or anything else valuable. And to this day it is known as a fiat currency. That is, this is the currency that is not backed by anything other than government promises.

unsecured fiat currency

The word "fiat" is a Latin word meaning a currency that has been forcibly circulating for a certain time due to government power and people's trust in it.

That is why, today, there is a government decree. Behind all this is the same concept - the government always has the right to declare something that has no value, money. And this problem remains unresolved to this day. Without any material support for the currency we use today, governments around the world have been able to issue unlimited amounts of their banknotes without restrictions, printing them and making loans. And with the advent of the digital age, currencies (money) around the world are now common numbers in the global banking database.

US debt in fiat currency

This is the price of today's world currencies and especially the US dollar, the value of which the leadership of this country is trying to provide more with its military might and political influence, and not attachment to gold.

Until today, the demand from large institutional investors (large stock market players) was mainly determined by the US dollar, gold or shares of major corporations. The scheme is classic – in conditions of economic turmoil, everyone goes to the dollar or gold and, conversely, during an economic upswing, they withdraw money from dollar assets into shares of profitable companies.

And then, in the context of the usual investment instruments, a certain "cryptocurrency" appears.

line of the main liquid cryptocurrencies

We already understand how much the dollar and other world currencies are secured today, but what is still secured by crypto money, in particular Bitcoin (BTC) and Ethereum (ETH), with the highest level of capitalization today (about 2 billion US dollars), even in comparison with the same gold, which still has its own material sense of touch.

Itself the value of cryptocurrency is largely determined not by this, for many, not by an understandable name, but by technology (blockchain) on which it functions and the possibility of developing software on it that optimizes the processes of public relations, in particular smart contracts.

Let's give an example.

There is a boy Vitalik. He has developed a service software package, the essence of which is that any information added to his network will be accumulated and stored in one large distributed database (blockchain) in all its nodes (computers) without the ability to replace, change or delete it.

If we consider cryptocurrency settlements (from whom to whom), then the database reflects information on the movement of funds from one account to another.

The database has a decentralized nature with its placement on different computers around the world. Anyone can download it by installing a wallet (a special program) of this cryptocurrency on their computer and synchronizing the entire blockchain network to their hard drive. That is, the "death" of one of the network computers will not affect the safety and reliability of the database (blockchain) as a whole, since the information remains on other computers.

All information as it enters the network is formed in the form of a chain of blocks. Each subsequent block contains encoded information from the previous block in the form of a hash string. Due to this, the integrity and reliability of information is protected.

The information (on transactions, smart contracts, etc.) of each block is converted as a result of the work of complex mathematical algorithms into a fixed-length (output) bit string.

how the block is created and converted in the hash

That is, after the network confirms the transaction, it will be encoded into its hash.

block chain in the blockchain - the principle of construction

When forming the hash of this block, the hash of the previous one is taken into account, and the hash of the previous one takes into account the hash of the pre-previous one, etc. And according to this algorithm, the hash of the current block is formed, which takes into account all the previous information in the form of a hash entered into the blockchain earlier.

And if someone even tries to make changes to the blockchain for previously performed operations, then all the hashes of the blockchain will change, and this is practically impossible, since it will require changes to all the blocks of users of the system.

This is the key advantage of this technology – decentralization (allows you to store data on millions of computers) and the practical impossibility of hacking it. And behind this is the change of life stereotypes in the political and socio-economic relations of society, namely the introduction into them:

  • efficiency
  • objectivity
  • justice

And where do these cryptomonets come from and who encrypts all database blocks into a hash ?

In order for the blockchain to exist and its base to grow, it is necessary to constantly calculate and encrypt data added to the blockchain network into a hash code.

To encrypt information into a block, sufficiently powerful computing devices are needed that are capable of calculating and selecting a unique hash code for each subsequent block into which it is encrypted. And if there are already quite a lot of blocks in the database (blockchain), then imagine what a difficult task it is necessary to solve to calculate this unique hash for each new block being formed.

This is where the question arises about high-performance and powerful computing equipment for calculating block hash headers. And this is done by miners who have GPU or ASIC devices at their disposal. It is the mining equipment that helps the functioning of the cryptocurrency blockchain network and it is it that helps to solve the mathematical problems of cryptography.

the essence of the blockchain is the process of building hashes into blocks

For each block, the miner receives a reward in the form of the coin for which he "sweats" for encrypting transactions. With each closed block, the complexity of computational calculations in the system also increases. And this is done so that over time the amount of generated currency does not grow exponentially and stability is maintained. Ultimately, with the increase in the number of blocks and the growth of mining participants, the reward will decrease every day. This determines the inability to print coins, unlike fiat money (dollars, pounds, euros, etc.).

The main and key advantage of blockchain technology is that it allows you to solve issues of contractual relations that are inherent in almost any sphere of human activity - quickly, cheaply, efficiently and without intermediaries (banks, notaries, insurance companies, etc.).

Hence the concept of a "smart contract" is born, the implementation of which is provided for in the blockchain of the system, in particular Ethereum.

P.S.: It is also possible to implement it on the Bitcoin blockchain, but these possibilities are a little limited compared to Ethereum.

Smart contracts are self-executing contracts that contain all the terms and conditions between the parties and the parties to the agreement. These terms and agreements of the smart contract are described in the code, which is executed on a decentralized platform based on the blockchain. Such agreements govern the exchange of any digital assets. It can be digital currency, stocks, property, anything we want to deal with. A decentralized blockchain platform creates a democratic system in which transactions are confirmed by the majority of participants whose identity remains unknown.

Let's look at an example of a smart contract using a simple example.

Rachel arrived at the airport, but her flight was postponed, however, this inconvenience may benefit Rachel. After all, according to the smart contract with the insurance company, she will immediately receive compensation for the delayed flight.

how the smart contract is implemented - an example from life

Imagine that there is an already launched smart contract with an insurance company. This contract tracks delayed flights. Rachel already has insurance in case of flight delays. As soon as this condition is met and the flight is delayed for more than X hours (for example, for 2 hours), the insurance company automatically pays the amount of compensation for which it is insured.

Let's see how a smart contract will help here.

AXA flight delay insurance is one of the examples of Ethereum (ethereum) smart contracts. AXA is an insurance company. The smart contract is linked to databases and tracks the status of flights. It constantly monitors information and detects delays. Thus, if the flight is delayed for 2 hours or more, automatic compensation occurs.

smart contract - execution algorithm

A smart contract is written in a specific programming language (Solidity) and added to the blockchain network. After that, it is sent to the EVM nodes (the compiler that executes the smart contract code) of the blockchain network to check the fulfillment of the conditions of the program code (the conditions of the smart contract). EVM is a brain, an electronic virtual machine for executing smart contracts. All nodes of the network executing code using EVM should come to the same result, because all EVMs have the same copy of the smart contract. If the flight is delayed for 2 hours or more, the smart contract is executed automatically and Rachel receives compensation.

This is the purpose of a smart contract without intermediaries, paperwork, various rituals, without having to send an application to an insurance company and wait for it to process it manually. All these stages are absent and the payment is made directly in favor of Rachel.

Thus, the potential of blockchain technology lies in the real revolutionization of the entire IT industry and its introduction into all spheres of society.

Therefore, the value of cryptocurrencies will grow, and especially those coins whose blockchain already provides great opportunities for the implementation of useful socio-economic projects.

Perhaps in the near future there will still be a fall and a correction in the value of the main types of cryptocurrencies, but in the long term, as the governments of key states recognize this technology and this independent monetary crypto unit, the growth trend will only intensify.

It's not for nothing that key investors are investing in this asset today. The inclusion of Bitcoin and Ethereum in the Chicago Mercantile Exchange (CME) futures listing also speaks about the liquidity of this product. And the fact that transactions with them are already more non-speculative in nature, says the gradual and massive withdrawal of crypts from exchanges to cold wallets (for storage) of investors themselves.

The essence of the cryptocurrency and why it will grow in price - Something like that!

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