When most people think of cryptocurrencies, they might also be thinking of cryptic currency. Very few people seem to know what it is and for some reason everyone seems to be talking about it as if they do. Hopefully, this report will demystify all aspects of cryptocurrency so that by the time you’re done 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 will be able to speak with a degree of certainty and knowledge that others will not possess.
There are many people who have already achieved millionaire status by trading cryptocurrencies. There is clearly a lot of money in this new industry.
Cryptocurrency is electronic currency, short and simple. What is not so short and simple, however, is exactly how it comes to have value.
Cryptocurrency is a decentralized, virtual, digitized currency produced by the application of cryptography, which, according to the Merriam Webster Dictionary, is the “computerized encoding and decoding of information.” Cryptography is the foundation that makes debit cards, computer banking, and electronic commerce systems possible.
The cryptocurrency is not backed by banks; it is not backed by a government, but by an extremely complicated arrangement of algorithms. Cryptocurrency is electricity encoded in complex chains of algorithms. What gives them monetary value is their complexity and their security against hackers. The way cryptocurrencies are made is too difficult to replicate.
Cryptocurrency is in direct opposition to what is called fiat money. Fiat money is a currency that derives its value from government regulations or laws. The dollar, the yen, and the euro are all examples. Any currency that is defined as legal tender is fiat money.
Unlike fiat money, another part of what makes cryptocurrencies valuable is that, like a commodity like silver and gold, there is only a finite amount. Only 21,000,000 of these extremely complex algorithms were produced. No more no less. It cannot be altered by printing more, like a government printing more money to power the system without backing. Or by a bank altering a digital ledger, something the Federal Reserve will order banks to do to adjust for inflation.
Cryptocurrency is a means of buying, selling, and investing that completely bypasses government oversight and banking systems that track the movement of your money. In a destabilized world economy, this system can become a stable force.
Cryptocurrency also gives you a great deal of anonymity. Unfortunately, this can lead to misuse by a criminal element who use the crypto currency for their own purposes, just like regular money can be misused. However, you can also prevent the government from tracking all your purchases and invading your personal privacy.
Cryptocurrency comes in quite a few forms. Bitcoin was the first and is the standard from which all other cryptocurrencies are modeled. They are all produced by the painstaking alphanumeric calculations of a complex encoding tool. Some other cryptocurrencies are Litecoin, Namecoin, Peercoin, Dogecoin, and Worldcoin to name a few. These are called altcoins as a generalized name. The prices of each are regulated by the supply of the specific cryptocurrency and the demand that the market has for that coin.
The way cryptocurrency is created is quite fascinating. Unlike gold, which must be mined from the ground, cryptocurrency is simply an entry in a virtual ledger that is stored on multiple computers around the world. These entries have to be ‘extracted’ using mathematical algorithms. Individual users or, more likely, a group of users run computational analyzes to find a particular set of data, called blocks. The ‘miners’ find data that produces an exact pattern to the cryptographic algorithm. At that time, it is applied to the series and they have encountered a block. After an equivalent data string in the block matches the algorithm, the data block will be decrypted. The miner gets a reward of a specified amount of cryptocurrencies. As time passes, the amount of the reward decreases as the cryptocurrency becomes more scarce. In addition to that, the complexity of the algorithms in the search for new blocks also increases. Computationally, it becomes more difficult to find a matching series. Both scenarios come together to slow down the rate at which cryptocurrency is created. This mimics the difficulty and scarcity of extracting a commodity like gold.
Now, anyone can be a mine. The creators of Bitcoin made the mining tool open source, making it free for everyone. However, the computers they use work 24 hours a day, seven days a week. The algorithms are extremely complex and the CPU is running at full speed. Many users have specialized computers made specifically for mining cryptocurrencies. Both the user and the specialized computer are called miners.
The miners (the humans) also keep transaction books and act as auditors, so that a coin is not duplicated in any way. This prevents the system from being hacked and going haywire. They are paid for this work by receiving new cryptocurrencies each week they maintain their operation. They keep their cryptocurrency in specialized files on their computers or other personal devices. These files are called wallets.
Let’s recap by reviewing some of the definitions we’ve learned:
• Cryptocurrency: electronic currency; also called digital currency.
• Fiat money: any currency that is legal tender; government-backed, used in the banking system.
• Bitcoin: The original and gold standard of cryptocurrency.
• Altcoin: Other cryptocurrencies that are modeled after the same processes as Bitcoin, but with slight variations in their coding.
• Miners: individual or group of individuals who use their own resources (computers, electricity, space) to mine digital currencies.
o Also a specialized computer made specifically to find new coins through a series of computational algorithms.
• Wallet – a small file on your computer where you store your digital money.
Conceptualizing the cryptocurrency system in a nutshell:
• Electronic money.
• Mined by people using their own resources to find the coins.
• A stable and finite monetary system. For example, there are only 21,000,000 Bitcoins produced at all time.
• Does not require any government or bank to make it work.
• The price is decided by the number of coins found and used, which is combined with the public’s demand to own them.
• There are various forms of crypto currency, Bitcoin being the first and most important.
• It can bring great wealth, but like any investment, it has risks.
Most people find the concept of cryptocurrency fascinating. It is a new field that could be the next gold mine for many of them. If you find that cryptocurrency is something you would like to learn more about, then you have found the right report. However, I have barely scratched the surface in this report. There is much, much more to crypto than what I have seen here.