Trading Education

Beginners' Guide about Cryptocurrency and Blockchain. Lesson 1

What is the blockchain economy in simple words? Why is it developing?

Nowadays, the world is witnessing the start of the transition from the traditional system of money (fiat currencies) to digital assets and cryptocurrencies. The new financial model of the digital economy is already successfully operating on the blockchain.

How does this new blockchain economy model look?

Blockchain is a technology that allows users to entirely on their own manage their funds without any contact with banks or any other financial institutions. You are the only one who controls your money, decides how many accounts and currencies you have and who to send them to. The blockchain provides opportunities for both complete anonymity of all transactions with your finances, and vice versa - you can make all financial information completely transparent and open.

Digital money based on blockchain technology is called cryptocurrencies. Cryptocurrencies are the money of the new digital world that have already crossed the stage of ridicule and rejection by society and the state. Today, cryptocurrencies are real digital money.

Electronic currencies Webmoney, PayPal

One should not confuse cryptocurrencies with e-currencies such as Webmoney or PayPal. E-currencies are finances that are controlled. Users’ money can be frozen or liquidated at any time by the decision of the central office, which can receive instructions from the authorities or the Ministry of Internal Affairs. With cryptocurrencies, this will not work, since there is no single control center.

Disadvantages of fiat currencies

Fiat currencies used around the world daily have the following serious drawbacks:

  • Inflation reduces value. The government can start printing money to cover its spendings leading your savings to depreciation.
  • Taxes. Cashless payments are very easy to track, and the government is constantly increasing tax pressure on both businesses and ordinary people.
  • Fiat currencies are not secured. The combined output of all the money in the world exceeds all conceivable resources and technologies that could provide it. Basically, there is too much money.
  • Dependence on government policy. As soon as non-professionals take control, the national currency will greatly drop in value. The Zimbabwean dollar is a prime example.
  • Slow process operations. In some cases, a simple transfer of money from one bank account to another can take up to 24 hours due to ineffective business processes and outdated technologies.
  • Commissions. Banks like to charge high fees for large businesses. As long as you are an ordinary person, you do not notice it. When you are a business owner, commissions with large transactions can cost thousands or even tens of thousands of dollars.
  • Counterfeiting and altering money. Fiat money can be counterfeited, and if you are not an expert, you will not notice it. But when you will try to buy something with this money, you may have some serious problems.

What is a Cryptocurrency (e.g. Bitcoin and Ether)?

Cryptocurrencies (digital money) were created taking into account all the mistakes and accumulated experience of fiat currencies. These are digital assets that are completely controlled by their owner. No one can block an account, withdraw any commissions without your knowledge, or track your transactions. Cryptocurrencies are fast, secure, and very practical.

Cryptocurrency pros 

  • Limited issuance. Cryptocurrencies cannot be printed uncontrollably and in any quantity. So bitcoin, the main cryptocurrency, is limited in its number to 21 million, which is why its value grows over time and does not fall like the US dollar.
  • 24/7 account access from any part of the world. Users are not tied to banks, jurisdictions, or territories. Anywhere in the world, you can exchange cryptocurrency, even without access to the Internet.
  • Money management and control are in your hands. Thanks to blockchain technology, no one can cancel or change your transactions. Nobody stands between you and your money.
  • There are no restrictions on operations. You can send any amount of cryptocurrency at any convenient time to anyone you want. Nobody can limit you.
  • Impossibility of counterfeiting. Cryptocurrency cannot be counterfeited thanks to blockchain technology. You don't have to worry about potential scams.

What is blockchain?

Blockchain is a technology that enables to protect information from modification. The data or cryptocurrency in the blockchain is reliably protected and any changes can be easily verified. The blockchain can be flexibly configured depending on what you want to get, a completely closed anonymous system, or you need transparency and openness.

The security of information in the blockchain is so high because the data is not stored on one computer or server, but is evenly distributed across multiple devices. There is no single center that can be hacked, so the data can not be changed or erased.

Today, blockchain is actively used by both large financial institutions and giants of industry, logistics, and science. The security of information, transparency, and accessibility are what attracts specialists to this technology. For example, in Estonia, the blockchain works with sick leaves of patients, and in Georgia, it is responsible for the cadastral register.

What is a smart contract?

A smart contract is a computer algorithm that can replace the paper contracts we are used to having. Just like a regular contract, a smart contract is responsible for the control and implementation of certain agreements, such as the lease of real estate or the supply of goods.

Its difference from an ordinary contract is 100% fulfillment of the conditions and obligations of the parties. A smart contract cannot be fooled, and it is executed only if all the conditions specified in it are met. The computer is responsible for compliance with the terms of the smart contract, which excludes the possibility of collusion or deception.

Bitcoin as a result of the crisis 2009 

Bitcoin as the main cryptocurrency was created by a user under the pseudonym Satoshi Nakamoto, a talented mathematician and cryptographer, whose real identity has not yet been established.

Satoshi wrote that he was greatly impressed by the ineffective financial system of all countries, in particular the United States. Unlimited money printing, inflated national debt, market bubbles - all this pushed him to create new money, devoid of all the disadvantages of traditional fiat currencies. Curiously, Bitcoin was created just during the massive financial crisis of 2009 that swept the whole world.

On January 3, 2009, the first 50 bitcoins were created. In the beginning, the value of bitcoin was very low, less than 1 cent. Bitcoin owners took this fact as a joke, and as an example of this fact - in 2010, 2 pizzas with delivery for 10,000 BTC were purchased!

But very soon the first owners of bitcoins became millionaires and billionaires. Cryptocurrency has proven that its owners will be rich, and blockchain technology will be widely used.

Today's crisis is giving us all the opportunity to earn high returns thanks to cryptocurrencies. How to start? See the next tutorial!

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