What Is Crypto, and How Does It Work?

You probably have heard about the buzz surrounding cryptocurrency. It is a form of digital currency that is all the rage these days. Bitcoin, the first and most popular representative of crypto, was launched in 2009, and now there are thousands of others in circulation. However, with all the hype surrounding it, you might still have questions about what exactly it is and how it works.

In this beginner guide, we will provide you with a complete introduction to crypto, explaining the definition of crypto, its historical background, and how it works. Moreover, to deepen your knowledge about crypto, we are going to show you the different types of coins and the potential benefits as well as drawbacks of using them. So, let us start with something basic, like answering the question - what is cryptocurrency?

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So, what is cryptocurrency?

Cryptocurrency, or crypto for short, is a type of virtual money that uses special computer programs to secure and verify transactions, as well as to manage the creation of new units. What sets cryptocurrency apart is that it operates without any central authority or government controlling it, unlike traditional currencies such as the US dollar or euro.

"One of the coolest things about cryptocurrencies is that they are ‘decentralized,’ which means that they work without a central authority or middleman."

Instead of relying on banks or other financial institutions to process transactions, cryptocurrencies use a network of individuals and organizations all over the world to validate and confirm transactions. These people run specialized software that allows them to participate in the network and earn rewards for their contributions.

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People use cryptocurrencies to pay for things like goods and services or as a type of investment. Even though they are still new and not yet widely accepted, many people see cryptocurrencies as an exciting and promising alternative to traditional currencies. Who knows? They might even change the way we think about money and revolutionize the financial industry!

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History of crypto

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The beginning (2009-2013)

The history of cryptocurrency begins in 2009 with the creation of Bitcoin, the first decentralized digital currency. Bitcoin was created by an anonymous individual or group of individuals who went by the name Satoshi Nakamoto. The idea behind Bitcoin was to create a new, decentralized form of money that could be used to buy and sell goods and services without the need for a central bank or financial institution.

In 2010, the first Bitcoin transaction took place when a programmer named Laszlo Hanyecz paid 10,000 BTC (which at the time were worth about $30) for two pizzas. This event is now celebrated as “Bitcoin Pizza Day” and is seen as an important milestone in the history of cryptocurrency.

In 2011, altcoins began to emerge, with Namecoin and Litecoin being among the first. Altcoins are cryptocurrencies that are similar to Bitcoin but with different features and specifications. They were created to address some of the perceived shortcomings of Bitcoin, such as transaction speed and scalability.

In 2013, Bitcoin’s value reached $1,000, signifying a momentous milestone in the evolution of cryptocurrency. Bitcoin had gained popularity among investors and traders who saw it as a potentially lucrative investment opportunity. However, the price was also volatile, and many people were skeptical of its long-term viability as a currency.

Failure and expansion (2014-2017)

The period from 2014 to 2017 was marked by both failures and expansion in the history of crypto. The year 2014 saw the collapse of Mt. Gox, one of the world’s major Bitcoin exchanges, causing a loss of over 850,000 BTC. This incident is widely regarded as one of the most significant scandals in the crypto industry's history, leading to heightened scrutiny and demands for regulatory measures.

Despite this setback, the crypto industry continued to expand. In 2015, Ethereum was launched, introducing smart contract technology and expanding the capabilities of blockchain-based applications. Ethereum quickly gained popularity among developers and investors, and it remains one of the largest cryptocurrencies by market capitalization today.

By 2017, the total market cap of cryptocurrencies had reached over $800B, with Bitcoin surging to nearly $20K. This period saw a surge of interest in cryptocurrencies, with many people investing in Bitcoin and other digital assets. However, this period was also marked by high volatility and a lack of regulation, which led to concerns about the stability and long-term viability of crypto.

This period was a time of both growth and challenges in the history of cryptocurrency. While the collapse of Mt. Gox highlighted the risks and uncertainties of the industry, the launch of Ethereum and the growth of the total market cap demonstrated the potential of blockchain technology and digital currencies in general.

The Aftermath (2018-2019)

The period from 2018 to 2019 was a time of recovery and new developments in the history of cryptocurrency. In 2018, the cryptocurrency market experienced a sharp decline, with Bitcoin losing over 80% of its value from its peak. This decline was attributed to a number of factors, including regulatory uncertainty, security concerns, and a lack of mainstream adoption.

However, despite the decline in prices, more businesses began to adopt cryptocurrencies as a payment method in 2019. According to a report by Kaspersky, a cybersecurity firm, the adoption of cryptocurrencies as a payment method increased by 700% globally in 2019. The report states that 13% of surveyed consumers used cryptocurrencies to pay for goods and services, up from 9% in 2018.

This increased adoption of cryptocurrencies by businesses and consumers signaled a growing acceptance of digital currencies as a viable form of payment. It also highlighted the potential benefits of cryptocurrencies, such as increased security, faster transaction times, and lower transaction fees.

The period from 2018 to 2019 was also marked by new developments, such as the launch of new blockchain-based platforms and the introduction of new regulations. Governments and regulatory bodies around the world began to take a closer look at cryptocurrencies, recognizing their potential while also addressing concerns about fraud, money laundering, and other illicit activities.

The timeframe of 2018 to 2019 presented a mixed bag of challenges and opportunities in the realm of cryptocurrency. Despite encountering hurdles such as the drop in prices and regulatory ambiguity, the acceptance of cryptocurrencies as a mode of payment and the implementation of fresh regulations highlighted a greater acknowledgement of their worth and relevance in the worldwide economy.

Resurgence and regulation (2020-Present)

The period from 2020 to the present day has seen a resurgence of interest in cryptocurrencies, as well as increased regulation and scrutiny from governments and financial institutions around the world. In 2020, Bitcoin’s value began to recover after a period of decline, driven by increased institutional investment and growing interest from mainstream investors. The COVID-19 pandemic also highlighted Bitcoin’s potential as a hedge against economic instability, with many investors turning to digital assets as a safe haven during the crisis.

By 2021, Bitcoin had reached a new all-time high of over $60,000 in April, demonstrating the growing mainstream acceptance of crypto. However, this period was also marked by significant volatility, with prices fluctuating wildly in response to market conditions and regulatory developments.

In 2022, the European Union and the United States presented drafts (MiCA and Biden’s framework to regulate crypto) for crypto regulation, indicating a growing recognition of the importance of cryptocurrencies and the need for regulatory oversight. This regulatory scrutiny has led to increased attention on the cryptocurrency industry, with many investors and industry experts calling for greater clarity and guidance on issues such as taxation, securities regulation, and anti-money laundering measures.

And finally, in 2023, the EU parliament gave the green light to world’s first comprehensive rules for crypto assets.

Despite these challenges, the cryptocurrency industry continues to grow and evolve, with new blockchain-based platforms and digital assets being developed all the time. Many experts see cryptocurrencies as a promising and disruptive force in the global financial system, with the potential to transform the way we think about money and financial transactions. However, as with any new technology, there are risks and uncertainties associated with cryptocurrencies, and it remains to be seen how the industry will develop in the years to come.

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Guide for beginners: How does crypto work?

In this beginner guide, we want to explain to you how cryptocurrency works. So imagine you have a piggy bank where you keep your allowance money. You can put your money in your piggy bank and keep it safe. Similarly, in the world of crypto, people have a digital piggy bank called a “wallet” where they can keep their digital money called “cryptocurrency.”

Now, if you want to give some of your allowance to your friend, you take the money out of your piggy bank and give it to them. In the same way, people can send cryptocurrency from their digital wallet to another person's digital wallet.

But how do we make sure that the person sending the cryptocurrency actually has it and is not cheating? That's where something called a “blockchain” comes in.

A blockchain is like a big digital book that keeps a record of all the transactions that have ever happened in the world of crypto. But instead of having just one person or company keeping the book, lots of people around the world have a copy of the book on their computers. And they all check and make sure that the transactions are real and nobody is cheating.

These people are called “miners,” and they get rewarded with some cryptocurrency for doing this work. Once a transaction is verified, it gets added to the blockchain and can never be changed or deleted. That way, we can trust that the transactions are real and nobody is cheating.

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So, just like your piggy bank keeps your allowance money safe, a digital wallet keeps cryptocurrency safe. And just like you can trust your friend to give you back your money if you lend it to them, we can trust that cryptocurrency transactions are real and secure because of the blockchain and miners.

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Different types of crypto

Cryptocurrencies are a diverse and rapidly-evolving group of digital assets that can be used for a variety of purposes. Here are some of the different types of crypto:

Bitcoin. As the first and most popular cryptocurrency, Bitcoin functions on a decentralized network and relies on a public ledger known as the blockchain to register transactions. It is frequently leveraged as a medium of exchange and a reliable store of value.
Altcoins. Altcoins are cryptocurrencies that share similarities with Bitcoin but have distinct features and specifications. Litecoin, Ripple, and Ethereum are among the various altcoins available. Altcoins are frequently designed to tackle identified inadequacies of Bitcoin, such as transaction speed and scalability.
Tokens. Tokens are virtual assets that are created, issued, and transacted on a blockchain network. They can represent various things such as assets, utilities, or even access rights within the network or its associated ecosystem.
Stablecoins. Cryptocurrencies referred to as stablecoins are specifically created to retain a steady value, often linked to a fiat currency like the US dollar. Their primary use cases include acting as a medium of exchange and a reliable store of value.
Central Bank Digital Currencies (CBDCs). CBDCs are digital currencies introduced by central banks to function similarly to conventional currencies while offering the advantages of digitalization, such as convenient transferability.
Non-Fungible Tokens (NFTs). NFTs are digital assets that signify distinct and irreplaceable items such as artwork, music, or video games. These tokens are commonly utilized within the art and collectibles space and are generally traded using cryptocurrency.

These are just a few of the different types of cryptocurrencies that exist today. As the cryptocurrency industry continues to evolve, new types of digital assets are likely to emerge, each with their own unique features and use cases.

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Advantages of crypto

Cryptocurrencies offer a range of advantages over traditional currencies and payment systems. Here are some of the key advantages of crypto:

Decentralization. Decentralized networks power cryptocurrencies, allowing them to operate without any central authority or intermediary overseeing them. This characteristic makes them highly resistant to censorship and government intervention.
Security. Cryptocurrencies use advanced cryptographic techniques to secure transactions and prevent fraud. Transactions are recorded on a tamper-proof public ledger called the blockchain, which is distributed across a network of computers, making it very difficult to hack or manipulate.
Anonymity. Cryptocurrencies offer a high degree of privacy and anonymity. Transactions are not tied to real-world identities, which means that users can conduct transactions without revealing their personal information.
Speed and efficiency. Cryptocurrencies enable fast and efficient transactions, often with lower transaction fees than traditional payment systems. Transactions can be conducted 24/7, without the need for intermediaries or third-party verification.
Global accessibility. Cryptocurrencies can be used by anyone with an internet connection, regardless of location or background. This makes them particularly useful for people who do not have access to traditional banking systems.
Investment potential. Cryptocurrencies offer a potential for high returns on investment, with many digital assets experiencing significant price increases over time. This has made them a popular investment option for many individuals and institutions.

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Challenges of crypto

While cryptocurrencies offer a range of advantages, there are also several challenges associated with their use and adoption. Here are some of the key challenges of crypto:

Volatility. Cryptocurrencies are known for their high degree of price volatility, which can make them risky as an investment and challenging to use as a means of payment.
Regulation. Cryptocurrencies are still largely unregulated in many parts of the world, which can lead to uncertainty and legal challenges for users and businesses.
Security. While cryptocurrencies use advanced cryptographic techniques to secure transactions, they are still vulnerable to hacking and other forms of cybercrime. There have been several high-profile security breaches in the cryptocurrency industry, which have led to the loss of millions of dollars' worth of digital assets.
Adoption. While cryptocurrencies have gained popularity in recent years, they are still not widely accepted as a means of payment by businesses and individuals. This limits their usefulness and can make them less attractive to potential users.
Complexity. Cryptocurrencies can be complex and difficult to understand for many people, which can make them less accessible to the general public. This can limit their potential for mainstream adoption and use.
Energy consumption. Cryptocurrencies rely on energy-intensive mining processes to create new digital assets and validate transactions. This has led to concerns about the environmental impact of the cryptocurrency industry and its sustainability over the long term.

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Guide for beginners: How to buy crypto using Utorg in 2023?

In this beginner guide, we are going to explain to you how to buy crypto with the help of Utorg. Just a few simple steps and the needed tokens will be in your “piggy bank” aka crypto wallet.

Step 1. Create an order. Specify your purchasing request by indicating the currency pair, the amount to buy, and the actual crypto wallet address.
Step 2. Make a payment. It is required to choose the most preferred payment method and complete the payment.

If you are a new user, you will be kindly asked to pass the identity verification procedure. But do not worry, it is a standard process for every new crypto user, and it takes a few minutes of your time (around 3 minutes). You can also watch our video below on how to buy crypto with a bank card.

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FAQ

1. What is a simple explanation of cryptocurrency?

A cryptocurrency is a digital or virtual form of money that uses cryptography (a method of securing communication and information) for security purposes. It operates on a decentralized network of computers called the blockchain. Cryptocurrencies can be used for online transactions, and their value is determined by supply and demand in the market. Bitcoin is the most well-known example of a cryptocurrency.

2. How does cryptocurrency work exactly?

Cryptocurrencies work through a decentralized network of computers that use advanced cryptographic techniques to secure and verify transactions. Transactions are recorded on a public ledger called the blockchain, which is managed by a network of users around the world and is not controlled by any central authority.

3. Is crypto real money?

Crypto is considered a form of digital currency and is increasingly being used as a means of payment and investment. However, its legal status and acceptance as “real money” varies by country and jurisdiction.

4. What is the main purpose of cryptocurrency?

The main purpose of cryptocurrency is to provide a decentralized and secure way of conducting financial transactions without the need for intermediaries or central authorities. Cryptocurrencies can be used as a means of payment and investment, and have the potential to disrupt traditional financial systems and empower individuals and businesses around the world.

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