What Is Crypto Currency?

The concept of “crypto currency” has been widely used in recent years not only by specialists of the financial sphere, but also by ordinary people in everyday life. The crypto currency achieved such a fast distribution due to the rapid development of advanced technologies as well as its inherent properties and functioning principles, which mainly come from the following definitions:

Cryptography

Science studying techniques to secure confidentiality (impossibility of reading information by a third party), data integrity (impossibility of imperceptible information change), authentication (verification of the author’s authenticity or other object properties) as well as non-repudiation.

Blockchain

Sequential chain of generated transaction blocks built according to certain rules. At the same time, each subsequent block of the structure contains information about the previous block, so on the whole, the chain stores the entire history of completed transactions.

Currency

Any commodity that can perform the function of money when exchanging goods on the domestic or international market.

The principles of cryptography and the Blockchain functionality allowed expanding the traditional concept of currency, which led to the emergence of crypto currency.

CRYPTO CURRENCY

Taking into account the core features of the above-mentioned concepts, we can formulate the definition of crypto currency — a digital asset, recording of which is decentralized; cryptography is used to ensure consistency of the chain of transaction blocks in the Blockchain.

The information on all actions with crypto currency is collected, processed and stored in the Blockchain. Inability to delete or modify records in the Blockchain shows the highest level of the system transparency.

Crypto currencies are classified according to certain categories, among which the following basic categories can be distinguished:

Unbacked
Pricing is formed on the basis of the demand established in the society due to emotions caused by different kinds of news taken from sources that are not always reliable, which differently influence the psychological perception of the information received, and as a consequence, contribute both to speculative growth and rapid devaluation of such a crypto currency.

Under modern conditions, unbacked crypto currencies face a risk of rapid devaluation that is a very weak and vulnerable link. It is obviously unreasonable to calculate economic models and make real forecasts of their development on the basis of such crypto currencies.
Backed
In case real Assets are laid down in the basis of backing the crypto currency, such a crypto currency is usually considered a crypto asset.

Assets can include movable and immovable property, machinery and production equipment, bank deposits, copyrights, financial instruments, securities, know-how, trademarks, shares in statutory funds and in other companies, shares in various projects with legal entities and individuals that have investment importance and contribute to the crypto asset capitalization and the growth of its value.

Thus, the owner of the Asset-backed crypto currency receives advantages in terms of such a guarantee as high liquidity of the given financial instrument compared to another crypto currency that is not backed by real Assets.