What is a cryptocurrency and how is its circulation regulated in the world?

 

Cryptocurrencies are virtual payment systems with their own monetary units, all transactions in which are protected by a cryptographic (encrypted) method. As a rule, systems are decentralized and do not have a single regulatory body or processing center. So, with respect to the concept of what is cryptocurrency, The term "cryptocurrency" was introduced in April 2011 after the publication in the American Forbes magazine about the first popular system of this kind - Bitcoin (Bitcoin, from the English bit - a unit of information "bit" and coin - a coin).

What is cryptocurrency in general

Principle of operation

Cryptocurrencies do not have a physical form and are stored in "electronic wallets". As a rule, data on user accounts and Bitcoin exchange operations between them are encrypted in the system using Blockchain distributed database technology. The operation of the system is supported by users and volunteers who run its application on their computers.

Most cryptocurrencies, including Bitcoin, operate without a regulatory body. Usually, the only source of issuing virtual currency is its “mining” (mining) by users who run applications: they are transferred a small amount of virtual money for the use of resources (computing device power) of their computers.

History

In January 2009, the first version of software for working with the Bitcoin payment system appeared on the Internet. Its author (perhaps a team of authors) signed the pseudonym Satoshi Nakamoto.

Initially, the currency was only used by computer enthusiasts. On May 22, 2010, a programmer from Florida (USA) Laszlo Hanich for the first time documented used bit coins for a real purchase, transferring 10 thousand units of "cryptocurrency" to a user under the pseudonym Jerocs and receiving two pizzas from him. 

In 2010-2011, the first exchanges appeared on the Internet, where you could exchange Bitcoin for real currency. In the spring of 2011, Bitcoin reached parity with the US dollar. 

At the same time, analogues of Bitcoin began to appear, differing from it in encryption methods or other features. Among them are Litecoin, Ethereum ("ether"), ripple, Dogecoin. In 2017, Bitcoin "split" into regular Bitcoin and, according to the developers, more reliable Bitcoin cash.

Since about 2011, Bitcoin, due to the anonymity of transfers, has been used by individuals associated with the drug trade and other illegal businesses. Since 2013, bit coins can be used to pay for services and goods in some online stores, hotel booking services. 

However, already in 2017, services or manufacturers that previously accepted this currency for payment began to refuse it due to sharp fluctuations in its value.

Interest in cryptocurrency is fueled by a possible increase in its value due to speculation. If at the beginning of 2016 the rate of one Bitcoin was $400, then by the end of 2017 it reached almost $20 thousand per unit. Then the cost of Bitcoin dropped to $3.5 thousand, but at the end of 2020, growth began again: this cryptocurrency reached $50-60 thousand in price.

The most common cryptocurrencies

As of January 20, 2022, the capitalization (the total value of all available on the market) of Bitcoin, the most popular cryptocurrency, is $796 billion, the current rate is $42 thousand per unit.

In total, there are about 2-3 thousand various cryptocurrencies in the world. The most popular also include:

- Ethereum, capitalization - $374 billion, unit cost - $3.1 thousand;

- BNB, capitalization - $78.9 billion, unit value - $475;

- tether, capitalization - $78.3 billion, fixed price - $1;

- USD Coin, capitalization - $46 billion, fixed price - $1.

The first official state cryptocurrency was petro. It was launched on February 20, 2018 by the Venezuelan authorities due to the economic crisis and hyperinflation of the official currency - the bolivar. The cost of the petro was pegged to the price of a barrel of Venezuelan oil, but this cryptocurrency was not widely used either in Venezuela or abroad.

Regulation of cryptocurrencies and criticism

Bitcoin and most other cryptocurrencies are not pegged to other national currencies or assets, not backed by anything other than the trust of its holders. The rate of cryptocurrency is set on virtual exchanges that carry out operations to exchange it for real money. 

In this regard, the assessment of cryptocurrencies as a high-risk asset and a potential "financial pyramid" is widespread. For example, in 2017, the head of the largest American bank JP Morgan Chase, Jamie Dimon, called cryptocurrencies a "fraud", comparing them with the Dutch "tulip fever" (1637-1638) and promising to fire any employee of his bank who decides to trade cryptocurrencies.

At the end of 2013, the growth in the volume of transactions with bit coins, including those serving illegal business, attracted the attention of the authorities of a number of countries and raised the issue of regulating the use of virtual currencies. 

In most countries, including the EU and the US, the circulation of bit coins is not prohibited or regulated by law. However, the authorities of these countries proposed to strengthen control over dubious operations performed using cryptocurrencies or to impose taxes on any transactions using them.

The first countries where bit coins were recognized as completely legal money were Japan and Belarus in 2017, where this cryptocurrency can be legally paid for goods and services.

Currently, the laws of different countries treat Bitcoin and their analogues differently. As a rule, registered financial institutions are prohibited from conducting transactions related to cryptocurrencies. Moreover, Bitcoin and analogues are not recognized as a full-fledged currency, but as a “virtual asset” subject to taxation.

The lack of regulation and signs of a "pyramid" are not the only complaints about cryptocurrencies. According to the website Digiconomist.net , the annual electricity cost of mining the current amount of Bitcoin in the world is 200 billion kWh - this is approximately the same as the annual amount of electricity consumed by Turkey or Thailand. 

Also, the spread of mining caused a speculative growth in computer components - primarily video cards, the chips of which are most suitable for "mining" cryptocurrencies.

Countries that have banned or restricted the circulation of cryptocurrencies

A number of states prohibit the use of cryptocurrencies by both individuals and legal entities. Among them are Egypt (ban introduced in 2018, confirmed in 2020), Nepal (2017), Bolivia (2014), Algeria (2018), Bangladesh (2017). Qatar and Bahrain prohibit investing in cryptocurrencies in their countries, but do not prohibit their citizens abroad from doing so.

Since 2017, Vietnam has banned the use of Bitcoin as a currency, for which there is a large fine (up to $8.7 thousand), but it does not regulate the purchase of cryptocurrencies as a virtual asset.

In China, since 2013, there has been a ban on cryptocurrency transactions for financial institutions. In 2017, the Chinese authorities closed all crypto exchanges operating in the country. In 2018, mining was formally banned, and in 2021, a complete ban on the exchange of cryptocurrencies was introduced.

In 2021, the authorities of Turkey and India took steps to limit the circulation of cryptocurrencies.

Conclusion:

So, that's all I know about what is cryptocurrency?