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 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’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 with cryptocurrencies. 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 how it has value.
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, computer banking and eCommerce systems.
Banks do not support cryptocurrency; it is not supported by the government, but by an extremely complicated algorithmic arrangement. Cryptocurrency is electricity that is encoded into complex sequences of algorithms. What gives the money value is their intricacy and 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 a government decision or law. The dollar, yen and euro are all 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 pump up the 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 track the movement of your money. In a world economy that is destabilized, this system can become a stabilizing force.
Cryptocurrency also gives you a great deal of anonymity. Unfortunately, this can lead to misuse by a criminal element who use cryptocurrency for their own ends, just as regular money can be misused. However, it can also prevent the government from tracking your every purchase and invade your personal privacy.
Cryptocurrency comes in several forms. Bitcoin was the first and is the standard by which all other cryptocurrencies are built. All are produced by meticulous alpha-numeric calculations from a complex coding tool. Some other cryptocurrencies are Litecoin, Namecoin, Peercoin, Dogecoin and Worldcoin to name a few. They are called altcoins as a generalized name. The prices of each are regulated by the supply of a particular cryptocurrency and the demand that the market has for that currency.
The way cryptocurrency came to be 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 in various computers around the world. These entries must be ‘mined’ using mathematical algorithms. Individual users or, more likely, a group of users perform computational analysis to find specific series of data, called blocks. ‘Miners’ find data that produces the correct pattern for a cryptographic algorithm. At that point it is applied to the series and they have found the block. After the equivalent series of data on the block is matched by the algorithm, the data block is unencrypted. 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 search of new blocks has increased. Computationally, it becomes more difficult to find a matching string. Both of these scenarios come together to 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 anyone to use. 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 tilt. Many users have specialized computers built specifically for cryptocurrency mining. Both the user and the specialized computer are called miners.
Miners (human) also keep transaction ledgers and act as auditors, so the coin is not duplicated in any way. This prevents system hacking and rabies. They are paid for this work by receiving new cryptocurrency every week as they maintain their work. They store their cryptocurrency in specialized files on their computers or other personal devices. These files are called wallets.
Let’s recap by going through a few definitions we’ve learned:
• Cryptocurrency: electronic currency; also called digital currency.
• Fiat money: any legal tender; with state support, it is used in the banking system.
• Bitcoin: the original and gold standard of cryptocurrency.
• Altcoin: other cryptocurrencies that are based on 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 built specifically to find new coins through a computer series of algorithms.
• Wallet: a small file on your computer where you store your digital money.
Conceptualizing cryptocurrency systems in a nutshell:
• Electronic money.
• Miners are individuals who use their own resources to find coins.
• A stable, finite currency system. For example, there are only 21,000,000 Bitcoins ever produced.
• It does not require the government or the bank to do so.
• The price is decided by the amount of coins found and used combined with the public’s demand to own them.
• There are several forms of cryptocurrency, Bitcoin being the first.
• 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 find that cryptocurrency is something you’d like 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 through here.