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 be talking about it as if they do. Hopefully، this report will demystify all aspects of cryptocurrency so that by the time you finish reading, you 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 have.
There are many people who have already achieved millionaire status by dealing in 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 exactly how value is made.
Cryptocurrency is a digitized, virtual, decentralized currency produced by 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 supported 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 currency that derives its value from 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 a commodity such as 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، like a government printing more money to prop up the system without support. Or from a 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 surveillance and banking systems that track your money movements. In a world economy that is destabilized, this system can become a stabilizing force.
Cryptocurrency also gives you great anonymity. Unfortunately, this can lead to misuse by a criminal element that uses cryptocurrency for their own purposes، just as regular money can be misused. However, it can also prevent the government from tracking your every purchase and invading your personal privacy.
Cryptocurrency comes in several forms. Bitcoin was the first and is the standard from which all other cryptocurrencies are modeled. 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. These are called altcoins as a generalized name. The prices of each are governed by the supply of the specific 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 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 produces an accurate model of the cryptographic algorithm.
At that point، it is applied to the series, and they have found a block. Once an equivalent series of data in the block matches the algorithm، the data block is unencrypted. The miner receives a reward of a specific amount of cryptocurrency.
Over time، the reward amount decreases as the cryptocurrency becomes rarer. Adding to this, the complexity of the algorithms in searching for new blocks has also increased. Computationally, it becomes more difficult to find a matching series. Both of these scenarios combine to slow down the speed 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 CPU is running at full tilt. Many users have specialized computers designed specifically for cryptocurrency mining. Both the user and the specialized computer are called miners.
Miners (those people) also keep transaction logs and act as auditors so that a coin is not duplicated in any way. This keeps the system from being hacked and malfunctioning. They are paid for this work by receiving new cryptocurrencies every week that keep them running. They keep their cryptocurrency in specialized files on their computers or other personal devices. These files are called wallets.
Let’s summarize by going through some of the definitions we’ve 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 cryptocurrency.
• Altcoins: other cryptocurrencies that are modeled by the same processes as Bitcoin, but with minor changes to their coding.
• Miners: an individual or group of individuals who use their own resources (computers, electricity, space) to mine digital currencies.
o Also a specialized computer designed specifically for finding new coins through a series of algorithm calculations.
• Wallet: a small file on your computer where you store your digital money.
The concept of the cryptocurrency system in a nutshell:
• Electronic money.
• Mined by individuals using their own resources to find coins.
• A stable, limited currency system. For example, there are only 21,000,000 Bitcoins ever produced.
• It does not require any government or bank to make it work.
• The price is set by the amount of coins found and used which is combined with the public demand to own them.
• There are several forms of cryptocurrency, Bitcoin being the first.
• It can bring great wealth, but, like any investment, there are 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 want to learn more about، then you’ve found the right report. However, I have barely touched the surface in this report. There is much, much more to cryptocurrency than what I have gone over here.