Cryptocurrency is a modern type of money in digital or electronic form. The oldest and best-known representative of virtual currencies is bitcoin, which has a leading position among others, such as ethereum or litecoin, for example. And it still strengthens her.

Origin and significance of cryptocurrencies

The history of virtual internet currencies dates back to the 1990s, when projects such as e-gold or beenz.com were created. But they are constantly attacked by hackers and interventions by state regulations.

The creators of bitcoin learned from the failure of these projects and created an alternative monetary system immune to hacker attacks, stock market crashes and the intervention of authorities or central banks. At the same time, it was to be ordinary currency or a means of safely depositing capital.

The bitcoin system is based on open source software, so it was quite easy to copy it and imitate its source code. Over time, a number of other cryptocurrencies were created, but they strive in vain for similar success as bitcoin.

Virtual currencies do not have a uniform price, they are traded on stock exchanges and exchange offices depending on volatility. Differences in prices can vary even in the order of several hundreds of dollars.

On what principle do cryptocurrencies work

The basis of an autonomous and decentralized system of cryptocurrencies is a network of interconnected computers of thousands of different users. Whenever a transaction occurs on the network, all these computers in the system authorize it. In this way, blocks of transactions are gradually formed, which represent a kind of virtual ledger.

After filling in the block (or imaginary “ledger”), it will be locked with a special code key, the fingerprint of which will appear in the next block, thus creating a blockchain. To falsify numbers, it would be necessary to reveal the keys to all the blocks that have appeared in the chain since then – the risk of fraud is thus significantly minimized.

Authorization and encryption of blocks is provided by users’ computers. These are complex mathematical operations demanding energy and performance, so users are rewarded with a share of emerging bitcoins. Such extraction of cryptocurrencies is referred to as “mining”.

Bitcoin mining has lost its significance

According to the analytical company Fundstrat, cryptocurrency mining does not earn even a crown for internet gold diggers – the electricity consumed will be as expensive as the value of one virtual coin.

In addition, in September 2019, it was documented that world cryptocurrency mining through applications consumed approximately 18.8 gigawatts of electricity. This equates to annual energy consumption in Poland and at the same time emissions of 800 tonnes of carbon dioxide (CO2) greenhouse gas.

The rate of cryptocurrencies is fluctuating

Digital currencies have gradually become a phenomenon that has become of interest to the general public. Thanks to the rocket growth in the value of bitcoin, which rose by 2,700% in 2017 alone, some bitcoin investors managed to get fabulously rich. Of course, others wanted it.

However, the year 2018 marked a sharp fall for cryptocurrencies and brought investors a cold shower. Bitcoin lost three quarters of its value in one year, and other cryptocurrencies such as litecoin and ethereum lost value just as sharply.

As a result of corrections to the entire cryptocurrency market in 2018 and 2019, bitcoin gradually reached a lowest price of $ 3,000 in 2020. At the end of this year, however, the price of bitcoin began to rise rapidly again, its value rose sharply and climbed to almost $ 30,000.

In the first half of January 2021, bitcoin exceeded 40,000 for the first time: one coin traded at $ 41,940 at the absolute peak.

The price of cryptocurrencies is often significantly affected by publicity. For example, Tesla co-founder Elon Musk helped bitcoin grow by a record 20 percent at the end of January 2021 just by putting the hashtag #Bitcoin in the label on his twitter profile.

The bitcoin price rose again when the electric car manufacturer Tesla invested 1.5 billion US dollars in the cryptocurrency in February 2021. A few days later, bitcoin broke another record, reaching over $ 48,000.