Cryptocurrency has long been in the sphere of interests of not only IT specialists, but also other people. However, most of us have little understanding of how it works and, moreover, whether it is worth investing in it. In the new “Point of View”, experts will talk about the internal structure of this currency and explain how you can make money on it. An IT specialist, a financier and an investor practitioner shared their knowledge.
IT specialist about blockchain technology and the structure of cryptocurrency
Vyacheslav Salmanov , a graduate of the Engineering and Technology Academy of Southern Federal University, a programmer, told what cryptocurrency is from a technical point of view and how blockchain technology works.
The speaker noted that cryptocurrency is one of the options for a digital asset – it is a number assigned to a user ID. Depending on how much users value the value of their account at a point in time, the value of cryptocurrency on the world market will be formed. The expert noted that an analogy can be drawn with any valuable assets – foreign currency, company shares, precious metals, etc.
“When developing the first cryptocurrency, the Bitcoin we all know, the authors came up with the idea of complete decentralization of the information network and the use of blockchain technology. This means that there are no administrators or other users with special powers. No one else will be able to change the account balance, freeze it, or change any information. Blockchain does not allow you to forget a single fact that happened on the network. All information is stored forever in the database and cannot be deleted by anyone,” Vyacheslav Salmanov.
The reliability of the described system and the security of stored data are ensured by modern strong cryptographic algorithms. According to the speaker, we use these mechanisms every day everywhere, but we have only heard about them in the context of cryptocurrencies.
The account balance is one of the system parameters and is stored in the blockchain. To start using cryptocurrency, you need to create a wallet in the chosen system. You can purchase cryptocurrency on one of many exchanges. This is no more difficult to do than buying fiat currency.
“To manage your account, the user must have the key to his wallet. This key can be stored both on the user’s device and on a special medium – a cold wallet. It’s like using a digital signature,” said the programmer.
The speaker also emphasized that cryptographic systems are based on a consensus protocol – an algorithm according to which users can verify the authenticity of data. One of the most popular consensuses is Proof of Work. This algorithm allows you to build blocks of information into a continuous chain by creating competition in the system.
For confirming information in the system, users receive a reward. For Bitcoin, this amount is 6.25 BTC. The miner’s computer is responsible for verifying the information. But this is a difficult mathematical problem. Therefore, if you ide it between several of your computers, you are likely to solve the problem much faster.
“So, the faster and more powerful your equipment, the greater your chances of success in mining. At the same time, there is a minimum threshold for entry – it will not be possible to be competitive with an ordinary personal computer in huge global networks, you will have to unite in groups and share the profits. Also remember that equipment tends to heat up and wear out, and after a couple of years of high load it will have to be replaced with a new one,” concluded Vyacheslav Salmanov.
Economist-financier on the regulation of the cryptocurrency market and the prospects for its development in our country
Oleg Sviridov , Doctor of Economics, Associate Professor of the Department of Finance and Credit, spoke about the legitimacy of income received from cryptocurrency and the prospects for the development of the market for this type of investment.
The speaker noted that the situation with cryptocurrency is not monitored by any government agency. However, this currency is one of the current investment instruments on the world market. Each investor bears the risks associated with generating income in this way.
“Cryptocurrency has a supranational character; no one stands behind this currency. There is no issuer and there is no final authority responsible for this currency. Therefore, all transactions with cryptocurrency are purely speculative. It must be said that, in principle, transactions with it are legal, but each investor assumes all fears and risks. It’s like selling antiques,” says Oleg Sviridov.
The economist said that cryptocurrency can occupy no more than 5-7% of the foreign exchange market, since there are certain restrictions in working with it. This currency cannot be used to purchase anything in our country; cryptocurrency can only be bought and sold. The speaker also noted that sometimes terrorist organizations pay for their illegal actions using cryptocurrency, since it is impersonal, and it is much more difficult to track the source of the funds received.
Oleg Sviridov shared his assumption about the development of the cryptocurrency investment market in the future:
“Firstly, for the cryptocurrency market to develop, most leading countries must accept it. Operations must be legalized. Until they are legalized, all this is semi-legal. Secondly, due to certain technical limitations, the cryptocurrency market is limited; it has, let’s say, a development limit. It will develop to a certain limit. Then he will not be able to develop purely technically. There is not much of it, it will just go from hand to hand. But producing cryptocurrency is infinitely impossible.”
Investor practitioner on the impact of cryptocurrency on the economy and the prospects for investing in this type of currency
Nikita Osin, a graduate of ITA and IUES SFU and an entrepreneur, spoke about the profitability and legitimacy of investments in cryptocurrency, the prospects for the development of blockchain technology and the attitude of financiers to a new type of transactions.
The speaker noted that cryptocurrency is not legally recognized, and the Central Bank does not define it as a means of payment. But any token or coin can be exchanged for classic fiat money: dollars, rubles, euros. At the same time, blockchain technology itself can greatly change the economy as a whole. For example, in modern conditions, when paying in a store with a card, 4 links are involved in the economic chain: the sender of the payment, the card issuing bank, the payment system and the payee. The use of cryptocurrency on the blockchain, the expert believes, will help reduce this chain to three elements.
“When paying with cryptocurrency, a new block is formed in the blockchain system. It is distributed among all network nodes, which check its validity. A valid block is added to the main network, and after that the translation takes place. Thus, there are 3 entities in this chain: the seller, the buyer and an abstract entity – the main network in which valid blocks are stored. In such a system it is impossible to deceive, and due to this, it is assumed that the exchange will occur much faster and easier. True, so far the capacity does not allow this to be ensured, but in the future this will develop,” Nikita Osin emphasized.
The financier also noted that from an economic point of view, the Ethereum coin is especially interesting. This is one of the first crypto coins. Its peculiarity is that it includes 3 “hypostases”. Firstly, it can be obtained by mining. Secondly, Ethereum was founded as an ICO project, and ICO projects can be created on its basis (supporting private ideas by purchasing tokens). Thirdly, Ethereum supports cold stacking – freezing funds with interest payments to maintain the rate.
“The question of the profitability of investing in cryptocurrency is twofold. You need to understand the technology and the market, find the optimal moment to enter. But, for example, opening a mining farm is better than any classic business. Because businessmen always try to set a payback period of around three years. And in the case of a farm, if you collect it from scratch, it will take about 10-11 months.
And most importantly, this business model is a priori unprofitable, because in any network of any coin the complexity is constantly growing. And each subsequent period of time, when the complexity increases, there will be less money while maintaining the same price. Anyway, it pays off. It’s beneficial and profitable, but you need to think with your head.”
The speaker noted that in relation to investments in cryptocurrency, financiers can be ided into 2 camps. The first consists of classic financiers who do not accept cryptocurrency and trade only stocks and bonds. The second group includes financiers who have a positive attitude towards transactions with cryptocurrency.
“I don’t trade stocks or bonds at all, I only buy crypto. Because there you can get much more in one transaction. And a big plus is modern cool exchanges. Therefore, I am for the development and legalization of cryptocurrency and blockchain technologies,” Nikita Osin.
Text authors: Anastasia Dashevskaya and Daniil Skryagin