In the past couple of years; the financial sector of the global economies has been impacted by the concept of a new method of transactions called ‘Cryptocurrency’. A cryptocurrency or “crypto” as it is more informally referred to is a digital currency that can be used to make payments for goods and services, but which uses an online ledger with strong cryptography to safeguard such online transactions. Much of the interest in these unregulated digital currencies is to transact for profit, with speculators at times pushing prices skyward.
The most popular of these cryptocurrencies is Bitcoin. Bitcoin has had explosive price surges this year, reaching nearly $65,000 per coin sometime in April before losing nearly half its value in May.
What Exactly Is Cryptocurrency?
Cryptocurrency is a method of payment that can be exchanged digitally online for goods and services. As the method becomes even more commonplace; many companies have begun to issue their own currencies, often referred to as tokens, and which can be used specifically for the good or service that such a company provides. You may liken them to how arcade tokens or casino chips are used in transactions with the issuing arcade or casino centers. However, you’ll need to exchange real currency for the cryptocurrency to access the good or service.
Cryptocurrencies depend on a technology called a blockchain. Blockchain refers to a decentralized technology spread across several computers that manage and records transactions. Part of the driving force and appeal of this technology is its security.
Where Cryptocurrency Comes From?
Cryptocurrency is generated by code. For many of the types of cryptocurrencies, new coins are created when transactions are established by a process known as mining. However, while that may be so for cryptos like Bitcoins and Ethereum; not every cryptocurrency uses mining to create new coins, and coins can be created in some other ways.
How a coin is created is dependent on what is defined by a given cryptocurrency’s code. For instance, instead of mining or mining alone, a cryptocurrency may generate some tokens upon take-off as developer rewards, or a cryptocurrency rewards holders of a token as interest for the values of such tokens they hold.
Here are important facts about how cryptocurrencies are generated
- Cryptocurrency is software. The entire cryptocurrency process and function, starting with how transactions are recorded to how data is stored, is dictated by code.
- Particularly for cryptocurrencies that are meant to function primarily as money, cryptocurrency transactions are typically stored in a type of database known as a blockchain. While other cryptos may have their own unique technology; the idea is basically the same.
- For example, what we consider as cryptocurrency, for example, 1 Bitcoin, is actually numbers saved on a cryptocurrency’s blockchain.
- An alternative word used for value is “token”, often called a “coin”.
- Cryptocurrencies are generated by algorithms that depend on cryptography; which is why it is called “crypto” currency. Thus every transaction relates to unique cryptographic codes that secure the network.
- The software used in generating or “mining” Cryptocurrency is decentralized and distributed; meaning it is hosted on many individual computers around the world as against being hosted on a single server by one company.
- The algorithms for generating cryptocurrencies are generally written to award coins to computers that add transactions to the blockchain. It is this process of adding transactions to the blockchain that is known as mining.
- As mentioned in the first point made about cryptos, the cryptocurrency code defines things like maximum supply, mining rewards, etc.
- So, put simply, for most cryptocurrencies, the primary way new coins are created is by people all over the world running hardware that adds transactions to the blockchain. Besides this process, cryptocurrency tokens are generated by other mechanisms contained in a cryptocurrency’s software.
- Finally, it is important to note that the code for almost all cryptocurrencies is public; therefore anyone can check how coins are created.
While the volatile prices and the tech-based knowledge of cryptocurrencies may make trading in them something of an unknown system; it is however clear from the article that that needs not be the case for anyone no matter where they find themselves.
In the second part of this article, we will consider more facts about cryptocurrency that should enable you to get into it without any fears if you happen to be interested.
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