When most people think of cryptocurrency, they might as well think of crypto currency. Very few people seem to know what it is and for some reason everyone seems to talk about it as if they do. Hopefully, this report will demystify all aspects of cryptocurrency so that by the end of reading, you’ll have a pretty good idea of what it is and what it’s all about.
You may or may not find that cryptocurrency is for you, but at least you’ll be able to speak with a degree of certainty and knowledge that others won’t possess.
There are many people who have already reached millionaire status by dealing in cryptocurrency. Clearly, there is a lot of money to be made in this brand new industry.
Cryptocurrency is electronic currency, short and simple. However, what is not so short and simple is exactly how the value is arrived at.
Cryptocurrency is a digitized, virtual, decentralized currency produced using cryptography, which, according to the Merriam Webster dictionary, is “the computerized encoding and decoding of information.” Cryptography is the foundation that enables debit cards, computerized banking and e-commerce systems.
Cryptocurrency is not backed by banks; it is not backed by the government, but by an extremely complicated algorithm arrangement. Cryptocurrency is electricity that is encoded into complex sequences of algorithms. What gives it monetary value is their intricacy and their security from hackers. The way cryptocurrency is made is simply too difficult to reproduce.
Cryptocurrency is in direct contrast to what is called fiat money. Fiat money is a currency that gets its value based on government decisions or laws. The dollar, yen and euro are examples. Any currency that is defined as legal tender is fiat money.
Unlike fiat money, another part of what makes cryptocurrency valuable is that, like commodities like silver and gold, there is only a limited supply. Only 21,000,000 of these extremely complex algorithms were produced. No more, no less. It cannot be changed by printing more of it, any more than the government prints more money to prop up a system without support. Or by the bank changing the digital ledger, something the Federal Reserve will instruct banks to do to adjust for inflation.
Cryptocurrency is a means of buying, selling and investing that completely avoids government oversight and banking systems that monitor the movement of your money. In a world economy that is destabilized, this system can become a stable force.
Cryptocurrency also gives you great anonymity. Unfortunately, this can lead to abuse by a criminal element who use cryptocurrency for their own ends just as regular money can be abused. However, it can also prevent the government from tracking your every purchase and invade your personal privacy.
Cryptocurrency exists in several forms. Bitcoin was the first and is the standard by which all other cryptocurrencies are modeled. All are produced by meticulous alphanumeric calculations from a complex coding tool. Some other cryptocurrencies are Litecoin, Namecoin, Peercoin, Dogecoin and Worldcoin to name a few. They are generally called altcoins. The prices of each of them are regulated by the supply of a certain cryptocurrency and the demand that the market has for that currency.
The way cryptocurrency was created is quite fascinating. Unlike gold, which has to be mined from the ground, cryptocurrency is just an entry in a virtual ledger that is stored on various computers around the world. These entries must be ‘mined’ using mathematical algorithms. Individual users or, more likely, a group of users run a computational analysis to find a specific set of data called blocks. ‘Miners’ find the data that produces the exact pattern to the cryptographic algorithm. At that point it is applied to the series and they have found the deadlock. Once the equivalent series of data in the block matches the algorithm, the data block is decrypted. The miner receives a reward of a certain amount of cryptocurrency. As time passes, the reward amount decreases as the cryptocurrency becomes smaller. In addition, the complexity of algorithms in the search for new blocks increases. Computationally, it becomes more difficult to find a matching string. Both of these scenarios together reduce the speed of cryptocurrency creation. This mimics the difficulty and scarcity of mining a commodity like gold.
Now anyone can be a miner. Bitcoin’s originators made the mining tool open source, so it’s free for everyone. However, the computers they use run 24 hours a day, seven days a week. The algorithms are extremely complex and the CPU works at full steam. Many users have specialized computers built specifically for cryptocurrency mining. Both the user and the specialized computer are called miners.
Miners (the human ones) also keep transaction ledgers and act as auditors, so the coin is not duplicated in any way. This protects the system from hacking and going wild. They are paid for this work by receiving new cryptocurrency every week as they maintain their work. They keep their cryptocurrency in specialized files on their computers or other personal devices. These files are called wallets.
Let’s summarize by going through a few definitions we learned:
• Cryptocurrency: electronic currency; also called digital currency.
• Fiat money: any legal means of payment; backed by the government, used in the banking system.
• Bitcoin: the original and gold standard of cryptocurrency.
• Altcoin: other cryptocurrencies that are formed from the same processes as Bitcoin, but with slight variations in their coding.
• Miners: an individual or a group of individuals who use their own resources (computers, electricity, space) to mine digital coins.
o Also a specialized computer made specifically to find new coins through a computer series of algorithms.
• Wallet: a small file on your computer where you store your digital money.
Conceptualization of the cryptocurrency system in a nutshell:
• Electronic money.
• Mined by individuals using their own resources to find coins.
• A stable, limited currency system. For example, there are only 21,000,000 Bitcoins ever produced.
• Does not require any government or bank to function.
• Prices are determined by the amount of coins found and used combined with public demand to own them.
• There are several forms of cryptocurrency, Bitcoin being the first and foremost.
• It can bring great wealth, but, like any investment, it carries risks.
Most people find the concept of cryptocurrency fascinating. It’s a new field that could be the next gold mine for many of them. If you think cryptocurrency is something you want to learn more about, then you’ve found the right report. However, I have barely scratched the surface in this report. There is much, much more to cryptocurrency than what I have gone over here.