The first cryptocurrency appeared on the Internet five years ago, and since then hundreds of other electronic money have joined Bitcoin, but still few know what it is, how it works and why it attracts so much attention.

Since the topic of the review is quite voluminous, and in order not to complicate the first acquaintance with cryptocurrency for many, some points in the text will be simplified to create a more understandable picture. In principle, these simplifications will not affect the description of the mechanisms of operation of the cryptocurrency.

 

Features of digital currency

Probably, the main reason for the popularity of digital currency is its decentralization and the resulting features. CV (digital currency) is not served by any central bank, and as the Bit prefix in the progenitor of all digital money hints at, it works on the principle of decentralization in the network. If in a large bank the bank itself is the main observer of the reliability of money transfers, then in CV such observers are network members - ordinary users.

For users, the main advantage of CV can be considered the speed of transactions (sending money from one user to another). If you have ever made a bank transfer to another country, then you know that this, in itself, a difficult procedure, can also take several days. Notification of a CV transfer occurs virtually instantly, and the transfer confirmation is carried out within a few minutes (for some CVs, less than a minute)

Another advantage of CV is the almost zero cost of translations. If banks charge a certain fee for their services, up to several percent, then the CV is transferred from account to account virtually free of charge.

Despite their dislike for CVs, large banks and money transfer systems have recently begun to reckon with its appearance. For example, eBay, the owner of Paypal, who put a spoke in the wheels of CVs, prohibiting their sale at auction, just recently abandoned such a restriction and now a special section has appeared for cryptocurrency on eBay .

The obvious advantage of CV is anonymity. If a plastic card is tied to a passport, then an electronic wallet is just a set of symbols that by itself will not be displayed even to a postal address. And if you install and use a basic security tool like Tor, then tracking transfers becomes impossible, even in theory.

The lack of centralization and central authority brings some disadvantages to CV. For example, all transactions are irreversible (unless an intermediary is used). That is, there is no opportunity to contact the bank and cancel the transfer. Money goes in one direction, and there is no way to return it without the consent of the recipient.

As for the other most frequently cited disadvantages of cryptocurrencies, which are mostly voiced by new users, it is usually mentioned that huge amounts of computing power and energy are wasted to maintain the functionality of Bitcoin and other currencies.

This statement can be viewed in another way. For example, the value of ordinary money, at least in theory, must be backed by something else, in our case gold. In the world of cryptocurrencies, the value of coins is, in a sense, provided by the cost of energy spent on mining and the funds spent on purchasing mining equipment.

As for the uselessness of computation, first, there are coins that make useful computations. For example, during Primecoin mining, new primes are searched for, and Gridcoin is completely connected directly to the Boinc project to participate in distributed computingaimed at solving physical, astronomical, biological, medical and other problems. Well, secondly, the huge computing power of Bitcoin is not wasted, but ensures the reliability of all transactions, and guarantees the network protection from possible hacker attacks, which are possible only if connected to the network with even greater computing power (read below about the 51% attack), which is almost unrealistic, given the funds spent on specialized mining farms, which have achieved colossal productivity over the past few years. Without the same processing power, younger CVs are vulnerable to various attacks, and some have already been exposed to them in the recent past.

 

Algorithms

There is a term Block Chain in the CV lexicon. In plain language, this is a book containing the records of all remittances for all time. Suppose this book is available on 1 million computers. If one of the computers sends a false message about the transfer of coins to another address (for example, to pay for goods in an online store), then the rest of the network will not just accept this statement. Monetary transactions must be confirmed by appropriate signatures that cannot be counterfeited.

There are two main algorithms in the cryptocurrency world: SHA256 and Scrypt. SHA256 is an algorithm for Bitcoin and several of its clones. Initially, Bitcoin mining took place on processors, but over time, programs appeared that learned how to use video cards, which significantly increased the efficiency of mining. After that, the so-called ASIC (Application-specific integrated circuit) were developed - boards optimized exclusively for calculating hash functions using the SHA256 algorithm and useless in all other respects.

ASICs are orders of magnitude more efficient than video cards, while using an order of magnitude less electricity. In principle, the disadvantage of ASIC boards comes down only to their high cost (for a board with sufficient performance you will have to pay several thousand dollars), and after their performance turns out to be uncompetitive, due to the release of a new generation of ASICs, it is difficult (almost impossible) for them to find a use due to their narrow specialization. In other words, they will have to be resold for next to nothing, or scrapped.

After the high cost of ASIC boards led to the fact that only wealthy enthusiasts were able to mine bitcoins, the idea came up to create a new algorithm called Scrypt, the main feature of which would be resistance to GPU and ASIC mining.

At first, Scrypt, as planned, ran only on processors, but the first applications for video cards appeared quite quickly. At first, it seemed that the release of specialized ASICs for Scrypt was really impossible. The fact is that calculations using SHA256 require a fairly small amount of memory, while Scrypt requires much larger amounts of memory available both in a computer and in modern video cards. The requirement for a large amount of memory makes the development and release of Scrypt ASICs not so much impossible as unprofitable, since adding the necessary amount of RAM to the boards makes them more expensive compared to video cards (at least, it was thought that some time ago). The advantage of video cards is their wider application (video games), and the possibility of sale after use.

The first CV based on the Scrypt algorithm was Litecoin, and since the source code of this currency was left open, after a while there was a real boom in altcoins (alternative coins is a common name for all CVs that appeared after Bitcoin). At the moment, there are several hundred altcoins, if you count the more or less famous. A list of them can be found on the website http://com-http.us/ , and this is not a complete list, although with its help one can get an idea of ​​the total number of CVs.

Which of these CVs are really popular is difficult to answer, since the assessment here is purely subjective. You can make your own conclusion by looking at the market cap (the total cost of a certain CV) on the website www.cryptmarketcap.com . As you can see, only a small number of top-coins have this value representing at least some significant amount for the currency.

Despite attempts to defend against Scrypt ASICs, all efforts were ultimately futile, although many did not believe in the possibility of their appearance until the very end. Nevertheless, they have been available for sale since the beginning of this year, although the first models traditionally lose in the price / performance ratio to conventional video cards.

The first Scrypt ASIC in performance was comparable to top-end processors (up to 100 Kh / s), but the next generation ASIC cards released after one or two months caught up with average video cards costing $ 200 (400 Kh / s) in speed. In the meantime, literally in a couple of months the first "titans" with performance exceeding the total power of several hundred Radeon 290x (100-200 Mh / s) are expected on sale. At the same time, the currently available ASICs (400 Kh / s) require no more than 5 W for operation and are connected directly to USB ports, while video cards with similar performance draw about 200 watts from the power supply unit.

The SHA256 and Scrypt algorithms are the most popular among CV, but there are others besides them, for example, Scrypt-N - another attempt to create a tough nut to crack for ASIC boards. The prefix N in the name means that after certain intervals (months or years) the amount of memory required to search for hash functions increases by N times (usually two), which does not exclude the possibility of creating ASIC boards for mining, but it does their development is even more disadvantageous.

There are also CPU-only coins, which at the moment, and possibly in principle, cannot be mined on anything other than processors, which makes them more "popular", since mining does not require the purchase of expensive video cards or ASIC boards. However, these coins also have their weak points - botnets created by special viruses. Botnets are no better than ASIC farms, especially if they have thousands of computers. And to gain access to such power, hackers do not need hundreds of thousands of dollars, a small virus outbreak is enough.

 

How can you get digital currency?

Any CV, like regular currency, can be bought. To do this, there are special exchanges on the Internet, for example, www.btc-e.com , where "ordinary" money is exchanged for digital. As a rule, the purchase procedure is as follows: transfer from a money card to an exchange -> buying Bitcoin at the current price -> withdrawing Bitcoin to your electronic wallet. There are other ways to replenish your account on exchanges, in addition to plastic cards.

However, this scheme usually only works with Bitcoins. Other cryptocurrencies are not so popular and the possibility of buying them directly for dollars or other currencies on exchanges is much less common, although in recent years there has been a noticeable shift in this area.

Therefore, to buy other CVs, you will need to use Bitcoins. You can also exchange Bitcoins for CV on specialized exchanges, for example, https://bter.com/ . To do this, you need to transfer the required amount of bitcoins to the exchange, buy the necessary altcoins with them and withdraw them to your wallet.

To get a closer look at CV and understand some of the terms, consider everything using the example of the very young, but quickly gaining popularity, Dogecoin cryptocurrency .

To get started with Dogecoin, you need to download a wallet program. This can be done on the official website , where there are versions for most operating systems, but for Windows owners I recommend using the lite wallet MultiDoge . Unlike the official wallet, MultiDoge does not download the entire block chain to the computer (the transaction history currently occupying about 2 GB), which takes several hours, but works almost immediately after launch.

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