When most people think of cryptocurrency, they may also think of cryptocurrency. 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 through cryptocurrency trading. There is obviously a lot of money to be made in this brand new industry.
Cryptocurrency is electronic currency, short and simple. But what is not so short and simple is how exactly it comes to have value.
Cryptocurrency is a digitized, virtual, decentralized currency produced through 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.
Cryptocurrency is not backed by banks; it is not backed by a government, but by an extremely complex arrangement of algorithms. Cryptocurrency is electricity that is encoded in complex strings of algorithms. What gives monetary value is their complexity and their security from hackers. The way cryptocurrency is made is simply 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 a government decision or law. The dollar, yen, and euro are examples. Any currency that is designated as legal tender is fiat money.
Unlike fiat money, another part of what makes cryptocurrency valuable is that, like a commodity like silver and gold, there is only a limited amount of it. Only 21,000,000 of these extremely complex algorithms were produced. No more no less. It cannot be changed by printing more of it, the way the government prints more money to pump up the system without support. Or from a bank changing a 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 both government oversight and banking systems tracking 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 abuse by a criminal element using crypto currency for their own purposes, just as regular money can be abused. However, it can also prevent the government from tracking your every purchase 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. All are produced through meticulous alphanumeric calculations by a sophisticated coding tool. Some other cryptocurrencies are Litecoin, Namecoin, Peercoin, Dogecoin and Worldcoin to name a few. They are called altcoins as a collective name. The prices of each are governed by the supply of the particular cryptocurrency and the market demand for that currency.
The way cryptocurrency is created 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 perform computational analysis to find specific series of data called blocks. “Miners” find data that creates an accurate model of the cryptographic algorithm. At this point it applies to the series and they have found a block. Once an equivalent string of data in the block matches the algorithm, the block of data is unencrypted. The miner receives a reward of a certain amount of cryptocurrency. Over time, the reward amount decreases as the cryptocurrency becomes scarcer. In addition, the complexity of the algorithms when searching for new blocks also increases. From a computational point of view, it becomes more difficult to find a matching series. Both scenarios combine to reduce the rate at which cryptocurrency is created. This mimics 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 anyone. However, the computers they use run 24 hours a day, seven days a week. The algorithms are extremely complex and the processor is working at full speed. Many users have dedicated computers made specifically for cryptocurrency mining. Both the user and the specialized computer are called miners.
Miners (human) also keep transaction logs and act as auditors so that a coin is not duplicated in any way. This protects the system from hacking and insanity. They get paid for this work by receiving new cryptocurrency every week 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 summarize by reviewing a few of the definitions we learned:
• Cryptocurrency: electronic currency; also called digital currency.
• Fiat money: any legal tender; backed by the government used in the banking system.
• Bitcoin: the original and gold standard of crypto currency.
• Altcoin: other cryptocurrencies that are modeled on the same processes as Bitcoin, but with slight variations in their coding.
• Miners: an individual or group of individuals who use their own resources (computers, electricity, space) to mine digital coins.
o Also a specialized computer designed specifically to find new coins through 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 individuals using their own resources to find the coins.
• A stable, limited currency system. For example, there are only 21,000,000 Bitcoins ever produced.
• Does not require a government or bank to operate.
• Pricing is determined by the amount of coins found and used, combined with the public’s demand to own them.
• There are several forms of crypto currency, Bitcoin being the foremost.
• It can bring great wealth, but like any investment it carries 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 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.