When most people think of cryptocurrency, they may also think of cryptocurrency. Very few people seem to know what it is and somehow everyone seems to talk about it as if they do. We hope this report demystifies all aspects of cryptocurrency, so that by the time you finish 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 confidence and knowledge that others don’t.
There are many people who have already reached millionaire status by trading cryptocurrency. Clearly, there is a lot of money in this new industry.
Cryptocurrency is electronic currency, short and simple. However, what is not so short and simple is how it has value.
A cryptocurrency is a digitized, virtual, decentralized currency produced by applying cryptography, which, according to the Merriam Webster dictionary, is “the computerized encoding and decoding of information.” Cryptography is the foundation that makes debit cards, computerized banking and electronic commerce systems possible.
Cryptocurrency is not backed by banks; it is not supported by the government, but by an extremely complex system of algorithms. Cryptocurrency is electricity that is encoded in complex strings of algorithms. Their complexity and security against hackers gives them monetary value. The way cryptocurrency is made is simply too difficult to reproduce.
Cryptocurrency is in direct opposition to what is called fiat money. Fiat money is a currency that derives its value from government regulation or law. The dollar, yen, and euro are all examples. Any currency that is defined as legal tender is fiat money.
Unlike fiat money, the value of cryptocurrency 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, just as the government prints more money to pump up the system without support. Or the bank changed the digital ledger, which the Federal Reserve instructs banks to do to adjust for inflation.
Cryptocurrency is a means of buying, selling and investing that completely avoids government controls and banking systems that track your money. In conditions of destabilization of the world economy, this system can become a stable force.
Cryptocurrency also gives you great anonymity. Unfortunately, this can lead to misuse by criminals who use cryptocurrency for their own purposes just like regular money. However, it can also prevent the government from tracking your every purchase and invading your personal privacy.
Cryptocurrency comes in many forms. Bitcoin was the first and is the standard from which all other cryptocurrencies are created. All done by careful alphanumeric calculations using a sophisticated coding tool. Some other cryptocurrencies are Litecoin, Namecoin, Peercoin, Dogecoin and Worldcoin to name a few. As a collective name, they are called altcoins. Prices for each of them are regulated by the supply of a particular cryptocurrency and the demand for that currency in the market.
The way cryptocurrency came about is quite fascinating. Unlike gold, which has to be mined from the ground, cryptocurrency is simply an entry in a virtual ledger that is stored on various computers around the world. These records must be “mined” using mathematical algorithms. Individual users, or more likely a group of users, run a computational analysis to find a specific series of data called blocks. “Miners” find data that creates a precise pattern for a cryptographic algorithm. At this point it applies to the series and they found the block. Once the equivalent string of data in a block matches the algorithm, the block of data has been unencrypted. The miner receives a reward in the form of a certain amount of cryptocurrency. Over time, the reward amount decreases as the cryptocurrency becomes scarcer. In addition, the complexity of algorithms for finding new blocks increases. From a computational point of view, it becomes more difficult to find the appropriate series. Both of these scenarios combine to reduce the rate at which cryptocurrency is created. This simulates the difficulty and scarcity of mining a commodity like gold.
Now anyone can be a miner. The creators of Bitcoin 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 is working at full capacity. Many users have specialized computers made specifically for cryptocurrency mining. A miner is called both a user and a specialized computer.
Miners (humans) also keep transaction ledgers and act as auditors to ensure that the coin is never duplicated. This protects the system from hacking and vandalism. They are paid for this work by receiving new cryptocurrency every week they maintain their work. They store their cryptocurrency in special files on their computers or other personal devices. These files are called wallets.
Let’s summarize by going over a few definitions we learned:
• Cryptocurrency: electronic currency; also called digital currency.
• Fiat money: any legal tender; supported by the state, used in the banking system.
• Bitcoin: The original and gold standard crypto currency.
• Altcoins: Other cryptocurrencies created from the same processes as Bitcoin, but with slight variations in their coding.
• Miner: An individual or 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 using a computational series of 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 coins.
• A stable, limited currency system. For example, only 21,000,000 Bitcoins have ever been produced.
• No government or bank required to make it work.
• Value is determined by the number of coins found and used, combined with public demand for their ownership.
• There are several forms of crypto currency, with Bitcoin being the first and foremost.
• Can bring great wealth, but like any investment, has risks.
Most people find the concept of cryptocurrency fascinating. This is a new field that could be the next gold mine for many of them. If you’ve found 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 of this report. Cryptocurrency is much, much more than what I’ve gone through here.