When most people think of cryptocurrency, they might also be thinking of cryptic currency. Very few people seem to know what it is about, and for some reason, everyone seems to talk about it as if they did. We hope this report demystifies all aspects of cryptocurrency so that when you finish reading, you get a good idea of what it is and what it is all about.
You may find that cryptocurrency is for you or not, but at least you will be able to speak with a certain degree of certainty and knowledge that others will not possess.
There are many people who have already achieved millionaire status by dealing in cryptocurrencies. 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 exactly how it comes to have value.
Cryptocurrency is a digitized, virtual, decentralized currency produced by the application of cryptography, which, according to the Merriam Webster dictionary, is the “computer encoding and decoding of information.” Cryptography is the foundation that makes debit cards, computer banking and e-commerce systems possible.
The cryptocurrency is not backed by banks; it is not supported by a government, but by an extremely complicated arrangement of algorithms. Cryptocurrency is electricity that is encoded in complex chains of algorithms. What gives monetary value is its complexity and its security against hackers. The way cryptocurrency is created is simply too difficult to reproduce.
The cryptocurrency is directly opposed to what is called fiat money. Fiat money is currency that gets its value by laws or government rulings. The dollar, the yen and the euro are examples. Any currency that is defined as legal tender is fiduciary money.
Unlike fiat money, another part of what makes cryptocurrency valuable is that, like a commodity such as silver and gold, there is only a finite amount of it. Only 21,000,000 of these extremely complex algorithms were produced. Neither more nor less. It cannot be altered by printing more, like a government printing more money to augment the system without supporting it. Or, if a bank modifies a digital ledger, something the Federal Reserve will instruct banks to do to adjust to inflation.
Cryptocurrency is a means to buy, sell and invest that completely avoids government oversight and banking systems of tracking the movement of your money. In a destabilized world economy, this system can become a stable force.
Cryptocurrency also gives you great anonymity. Unfortunately, this can lead to misuse by a criminal element who uses cryptocurrency for their own purposes, in the same way that normal money can be misused. However, you can also prevent the government from tracking 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 configured. All are produced by meticulous alphanumeric 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 the specific cryptocurrency and the demand of the market for this currency.
The way the cryptocurrency exists is quite fascinating. Unlike gold, which has to be extracted from the ground, cryptocurrency is just an entry in a virtual book that is stored on various computers around the world. These entries must be “undermined” by 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 an exact pattern of the cryptographic algorithm. At this point, they apply to the series and have found a blog. After a block-equivalent data series matches the algorithm, the data block has been decrypted. The miner gets a reward for a specific amount of cryptocurrency. As time goes on, the amount of the reward decreases as the cryptocurrency becomes scarcer. In addition, the complexity of algorithms in finding new blocks also increases. Computationally, it becomes more difficult to find a series that matches. Both 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. The creators of Bitcoin made the mining tool open source, so it’s 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 totally slanted. Many users have specialized equipment specifically for cryptocurrency mining. Both the user and the specialized computer are called miners.
Miners (humans) also maintain larger transaction books and act as auditors, so that a currency is not duplicated in any way. This prevents the system from being hacked and does not work. They are paid for this work by receiving a new cryptocurrency each week that keeps it running. They keep their cryptocurrency in specialized files on their computers or other personal devices. These files are called portfolios.
We summarize by reviewing some of the definitions we have learned:
• Cryptocurrency: electronic currency; also called digital currency.
• Fiat money: any legal course; supported by the government, used in the banking system.
• Bitcoin: the original and gold standard of cryptocurrency.
• Altcoin: other cryptocurrencies that are drawn from the same processes as Bitcoin, but with slight variations in their encryption.
• Miners: individual or group of individuals who use their own resources (computers, electricity, space) to exploit digital currencies.
o Also a specialized computer made specifically for finding new coins by computing series of algorithms.
• Wallet: A small file on your computer where you store your digital money.
Conceptualize the cryptocurrency system in a nutshell:
• Electronic money.
• Extracted by individuals who use their own resources to find coins.
• A stable and finite currency system. For example, there are only 21,000,000 bitcoins produced of all time.
• It does not require any government or bank to make it work.
• The price is decided by the amount of coins found and used that is combined with the public demand to own them.
• There are several forms of cryptocurrency, with 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 want to learn more about, you’ve found the right report. Still, I’ve barely touched the surface in this report. There’s so much, so much more to cryptocurrency than I’ve experienced here.