When most people think of cryptocurrency, they may also think of cryptic currency. Few people know what it is, and somehow everyone talks about it as if they do. This report will hopefully clarify 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 be able to say that cryptocurrency is for you, but at least you’ll be able to speak with a degree of confidence and knowledge that others may not have.
There are already many people who have reached the status of millionaires by trading cryptocurrency. Obviously, 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 the value is derived.
Cryptocurrency is a digital, virtual, decentralized currency produced through the application of cryptography, and according to the Merriam Webster dictionary, it is “the computerized encoding and decoding of information”. Cryptography is the foundation that makes debit cards, computer banking and e-commerce systems possible.
Cryptocurrency is not backed by banks; it is not supported by the government, but by an arrangement of very complex algorithms. Cryptocurrency is electricity encoded into complex strings of algorithms. What gives them value for money is their complexity and security from hackers. The way cryptocurrency is developed is extremely difficult to replicate.
Cryptocurrency is the direct opposite of so-called fiat money. Fiat money is a currency that derives its value from government decree or law. The dollar, yen, and euro are all examples. Any currency defined as legal tender is fiat money.
Another part of what makes cryptocurrency valuable, unlike fiat money, is that, like a commodity like silver and gold, it is only available in limited quantities. Only 21,000,000 of these extremely complex algorithms were produced. Neither more nor less. It cannot be changed by printing more, for example printing more money to power the system without government support. Or something where the Federal Reserve would instruct banks to adjust for inflation by changing a bank’s digital ledger.
Cryptocurrency is a means of buying, selling and investing that completely avoids both government control and banking systems to track the movement of your money. In an unstable world economy, this system can become a stable force.
Cryptocurrency also gives you a lot 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 invading your privacy.
Cryptocurrency comes in several forms. Bitcoin was the first and is the standard on which all other cryptocurrencies model themselves. All are made with precise alpha-numeric calculations from a sophisticated coding tool. Some other cryptocurrencies are Litecoin, Namecoin, Peercoin, Dogecoin and Worldcoin. These are collectively called altcoins. The prices of each are regulated by the supply of the particular cryptocurrency and the market demand for that currency.
The origin of cryptocurrency is quite interesting. Unlike gold, which must be mined from the ground, cryptocurrency is simply an entry in a virtual ledger stored on various computers around the world. These inputs 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 creates an exact pattern for a cryptographic algorithm. At that time it was applied to the series and they found a block. After matching the equivalent series of data in the block with the algorithm, the data block was encrypted. The miner receives a certain amount of cryptocurrency reward. Over time, the amount of the reward decreases as the cryptocurrency decreases. In addition, the complexity of algorithms in the search for new blocks also increases. Computationally, it becomes difficult to find a suitable series. Both of these scenarios come together to slow down the rate of cryptocurrency creation. This mimics the difficulty and scarcity of mining a commodity like gold.
Now anyone can be a miner. Bitcoin’s creators 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. Algorithms are extremely complex and CPU full tilt. Many users have computers specially designed for cryptocurrency mining. Both user and specialized computer are called miners.
Miners (humans) also maintain ledgers of transactions and act as auditors to ensure that a coin is never duplicated. This protects the system from hacking and confusion. They pay for this work by buying new cryptocurrency every week they continue their activity. They store their cryptocurrencies in special files on their computers or other personal devices. These files are called wallets.
Let’s review 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 of cryptocurrency.
• Altcoin: Other cryptocurrencies that are created using the same processes as Bitcoin, but with slight changes in their coding.
• Miners: an individual or group of individuals who use their own resources (computers, electricity, land) to mine digital coins.
o Also a special computer specially designed to find new coins through a series of algorithm calculations.
• Wallet: a small file on your computer where you store your digital money.
A brief conceptualization of the cryptocurrency system:
• Electronic money.
• Coins are mined by individuals using their own resources to find them.
• A fixed, limited currency system. For example, there are only 21,000,000 bitcoins ever produced.
• It does not require any government or bank to operate.
• Valuation is determined by the amount of coins found and used and combined with public demand to own these coins.
• There are several forms of cryptocurrency, the first being Bitcoin.
• It can bring great wealth, but like any investment, it also has risks.
Most people find the concept of cryptocurrency attractive. This is a new area that could be the next gold mine for many of them. If you find that there is something you want to learn more about cryptocurrency, you have found the right report. However, I have barely scratched the surface in this report. There is much more to cryptocurrency than what I have covered here.