We'll discuss an area that's still controversial with opponents and proponents alike
Cryptocurrencies are currencies that are traded and stored digitally using blockchain technology (referred to as 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 value of many currencies today exceeds a thousand dollars, and the total market value of digital currencies at the end of 2021 is estimated at about $ 2.3 trillion, and thus has become an integral part of the global financial system.
Many digital currencies are used today for financial transfers, especially international ones; To provide the high fees for traditional transfers mediated by banks and financial institutions, in addition to their main advantage of concealing the identity of the sender and receiver, many also buy digital currencies as an investment with the aim of profit by selling them later when their price rises.
The first known digital currency is Bitcoin, which was established by an anonymous person - or group of people - named Satoshi Nakamoto on January 3, 2009, after issuing a founding statement titled "Bitcoin: A peer-to-peer electronic cash system."
Bitcoin's success led to the emergence of several other digital currencies that tried to replicate the success of this currency and to expand the uses of digital currencies and their features, the most prominent of which was the Ethereum currency and network, which added the element of smart contracts, which allowed the development of decentralized applications (dApps), which has the most significant total market value after Bitcoin.
How do digital currencies work?
The idea of a digital currency is to determine each individual's holdings or credit based not on used banknotes or coins in national currencies, but on recording transactions and transfers between network members and disseminating information about new transfers and credits to all members of the network.
Each coin also has a way to validate and generate new blocks (new copies of the transaction history).
This is known as a consensus mechanism and is designed to prevent the same money from being sent multiple times, which leads to double spending, thus protecting the coin network from hacking and the creation of new coins (or mining), the most common of which is Proof of Work (PoW), which requires spending a lot of money.
The computing power in creating a block, and Proof of Stake (PoS), which is based on a block having to be verified by many people holding a certain amount of currency before it can be approved and issued.
Types of digital currencies
Depending on how they work, there are two types of digital currencies:
- Coins
They are the currencies that are operated using their own blockchain, and examples of them are; Bitcoin, Ethereum, and Solana.
- Tokens
They are currencies that run using smart contracts on other blockchains, such as Uniswap and Decentraland, which run on the Ethereum blockchain.
- Stablecoins
They are called stable digital currencies whether they run on their own blockchain or not, and they are currencies whose value does not change according to supply and demand but rather has a fixed value associated with the value of a national currency.
Conducting or increasing transactions, and for example; Tether, USD Coin, and Dai, which are worth $1.
Cryptocurrencies get a lot of criticism, most of which fall into three categories:
- dummy value
Many economists and influential personalities believe that most digital currencies do not have real value and that they are a bubble that will burst sooner or later, causing great losses to their owners, and they support their point of view, especially that digital currencies - unlike national currencies - are created through operations that are not linked to real economic activity on the ground. reality, which makes it incapable of expanding and contracting according to the state of the economy.
- Lack of oversight and transparency
Governments are unable to monitor, control, and confiscate funds transferred using digital currencies, which makes them an ideal means for conducting illegal transactions and activities, such as money laundering, drug trafficking, terrorist financing, and others.
- Energy consumption and electronic
waste, especially for currencies that use the proof-of-work mechanism, as mining and the computing power it requires consumes an enormous amount of energy sometimes equal to the consumption of entire countries in a single currency, and miners often turn to countries with cheap energy prices generated by unsustainable methods (such as coal ), in addition to the need for miners to constantly update their devices and get rid of old devices, which leads to the generation of large electronic waste
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