Cryptocurrency – sounds quite cryptic, doesn’t it? After all, the very meaning of the word crypto means secret, concealed, hidden, Therefore the word cryptocurrency may appear a bit mythical and intangible for the average person. But is it really? Cryptocurrency by definition is a digital currency the transactions of which are not recorded by a centralized authority but rather by a decentralized system using cryptography. One can sell, buy or trade them quite securely.
There are different types of cryptocurrencies, the most well-known ones are value tokens such as Bitcoin and Litecoin. And yes, you can actually turn these into cash if you move them to a bank account or exchange them at a bitcoin ATM for cash.
How to Mine It
But where do you get cryptocurrencies from? There are basically two ways to acquire them. The first is to mine them. This term has a historical connotation to the Gold Rush of nineteenth-century California, where adventurous hopefuls from all over the world ventured to remote territories in order to get rich by mining gold. Then one had to work hard, get proper equipment, and compete for the perfect location, which also involved some luck.
Today’s crypto miners work hard at solving complex computational math problems with sophisticated equipment, and there is real competition as hundreds if not thousands work simultaneously on the same problem all hoping to get lucky and finish first. You might think it’s only math geniuses who can mine cryptocurrency.
The actual math in solving these complex computational problems is more of a guesswork aided by high-powered computers with complex software handling large data. The basis of a cryptocurrency is the blockchain, a global log, where individual blocks of transaction data are chained or linked together.
The blockchain only has transactions that are validated in order to avoid spending the same currency twice or other misuses. The ensuing encrypted value is a series of forty-six numbers and letters that do not look like the original data. The miner – or pool of miners – has to come up with this forty-six digit hexadecimal series that is less than or equal to the original target number. This is called a hash.
Just to give you an example, think of the card game Blackjack. The objective is to pool cards together in the value of 21. If player A has 22 then he’s out because his number is greater than 21 however if player B has 18 and player C has 20, then both numbers qualify as they are both lower than 21. Unlike in Blackjack, however, according to the rules of cryptocurrency mining player B would win because he produced the answer first.
In cryptocurrency mining, the hash to be guessed has 64 digits and there are hundreds or thousands trying to guess the right number that resembles the original target number the most. These completed blocks of verified transactions are then added to the blockchain. Some consider it the new gold rush because once the miner or team of miners successfully completes or solves a problem first, they are rewarded by crypto tokens, such as bitcoin. The process is secure and highly profitable.
However, the general populace does not have the skills and the tools for mining. For them, there is the option of buying cryptocurrency with actual money or other cryptocurrencies or earning it by completing different activities that are paid for in cryptocurrency. Today most banks and cryptocurrency brokers also offer cryptocurrencies as an investment, as they are mediums for exchange, just like real money.
The big difference is that while money, otherwise known as flat currency, is issued, regulated, and issued by governments while cryptocurrency is owned by people, and its value is determined by what people want to trade for it. It is not subject to manipulation or changing political situations. As a side note, most governments have national debts, so in a way owning their currencies represents being in the red. Quite an oxymoron, if you think of it.
Their popularity is seen in the fact that today there are over sixteen thousand! different kinds of cryptocurrencies available to the public in the amount of three trillion dollars. The first cryptocurrency and blockchain database from 2008 was Bitcoin, founded by Satoshi Nakamoto – a pseudonym to conceal the actual founder or founders. There is serious guesswork going on even today about who might be behind this pseudonym. The mystery remains, though some say it is Nick Szabo, a cryptographer, cryptocurrency, and blockchain pioneer and expert. Bitcoin, Ethereum, and Litecoin became household names by today, and Elon Musk’s Twitter announcement in the summer made Dogecoin – crypto that started out pretty much as a joke about ten years ago – another well-known and highly traded currency. The latest in the crypto world is the NTF, or non-fungible token, which is used for buying digital art or parts of digital art.
Obviously, the question is whether we should all sell all we have and invest in cryptocurrencies? Well, despite the many advantages and attractions of a decentralized financial world with the power to sell, trade, exchange, and invest digitally and transparently, there is some caution to be practiced.
The last decade has seen many fluctuations in the value of diverse cryptocurrencies and proved that it can be quite a volatile market sometimes influenced by celebrities.
Its non-regulated feature can be frowned upon by some who very much like for their assets to have a guaranteed minimum value defined by a central authority. If a significant number of merchants want to get rid of Bitcoins en mass, the value will immediately decrease affecting those most who have large investments in Bitcoins.
The founder or founders of Bitcoin determined its number at 21 million. Those getting in the game early on made the highest profit, as each Bitcoin increases in value until the maximum is reached. There are already 19 million mined and in circulation in the market. Eventually, the value will deflate, and miners will make their money from transaction fees instead of mining.
Another potential scenario is that when one buys goods by using Bitcoins the items may not arrive after the transfer, and there is nothing to be done, unless a third party insures the process. That obviously costs more and typically involves a bank which defeats the original purpose of a decentralized system.
As of now, the biggest users of cryptocurrencies are found in the corporate world, dream companies, and pharmaceuticals along with the 300 million crypto users, and nearly 20 thousand businesses accepting crypto payments.
The brief tale of cryptocurrencies presented above only scratches the surface, of course. There are ever-expanding volumes written on the subject, and this is just the beginning. The brave new world of digital currency has arrived and is here to stay.