The importance of money as a form of judging the ownership of a person’s possessions has been known since the end of the Stone Age. It started with stone nuggets, then iron tablets followed by gold and silver coins and now paper money and electronic money. A notable fact is that throughout the timeline, the number of money people owned increased and the value of each unit decreased. This happened until a point where the banking system finally had to digitize its currency, and everything is stored in reserve banks in digitized form. A step ahead on the agenda is the concept of Cryptocurrencies. This is different from money stored in banks which can be accessed indirectly through debit/credit cards and online banking.
What is Cryptocurrency
Cryptocurrency is an online version of money, a digital asset to be precise. The name is derived from Cryptography, which is used to encrypt transactions and control the production of money. This is a strictly monitored process, as it uses blockchain technology.
To put it very simply, blockchain The technology is a distributed database that is used to manage and maintain a growing list of data blocks, collectively using a P2P network. These data blocks may be located in different locations and may not be connected to the same processor. A database is a collection of records. A distributed database is one that can be located in different places and not be attached to a common processor – but it can be located in the same or different physical locations and dispersed across a computer network. In a Blockchain, once a piece of data is recorded, it normally cannot be altered or modified.
Although previously overlooked, banks, financial institutions and businesses are increasingly aware of its importance. On the contrary, they are afraid of losing their market of ‘digital money‘ to the new currency.
While the security and ease of exchange make it an ideal means of monetary exchange for the future, few know about cryptocurrencies, and they are believed to be insecure. Although a recent surge in the price of Bitcoin and the simultaneous bragging of it on social media has generated a lot of interest, it could still be years before it enters the mainstream.
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What is Cryptocurrency Mining
To mine cryptocurrencies, you need powerful hardware as well as a combination of software. Since the value of a currency depends on the number of units of the currency available in the market, this should be a carefully monitored and highly reliable process. Cryptocurrency mining is simply the process of generating new units of cryptocurrency.
To understand this better, assume a large national economy with trillions of dollars in all the banks. Now, since it is not physically possible to store all these banknotes in banks, they store them in digital form with a central reserve bank. The reserve bank keeps a digital record of what it owes which bank, but does not keep the notes in physical form. Whenever he needs to pump money into the system and runs out of tickets, he just has them printed.
Although the relevant reserve bank can print as many banknotes as it can, it does not do it alone for no reason. This is because when we print more currency and pump more money into the market, it does not make people richer, it just devalues the existing currency and causes inflation. The more units of a currency exist in a market, the more its value is divided.
The same thing happens with cryptocurrency. Cryptocurrency mining is a carefully monitored process to ensure that the value of existing units does not depreciate.
How is the price of a cryptocurrency determined
While the market prices of different cryptocurrencies vary a lot, their liquidity remains a common trait. Currently, the value of cryptocurrencies fluctuates a lot.
The price of cryptocurrency, like almost all other products and services, depends on demand and supply. If more people request a specific cryptocurrency and it is insufficient, its value increases. Then other units are mined to maintain the flow. Many, however, have chosen to restrict the number that can be mined. For example, the number of Bitcoins is currently limited to a maximum of 21 million.
List of cryptocurrencies
Although the actual list of cryptocurrencies is huge – there are over 800 cryptocurrencies as of today, so we can only discuss the most important few here.
1]Bitcoin: Bitcoins are the most popular and highest rated cryptocurrencies. Rather, most consider it the only cryptocurrency available on the market. Priced somewhere near $600 per bitcoin in mid-2017, it became the reason for interest in the cryptocurrency market when its rate suddenly rose.
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2]Ethereum: Although still in its infancy, Ethereum launched in 2015 could be the cryptocurrency of the future. It is decentralized, secure and can be used to trade almost anything.
3] Litecoin: They say if Bitcoin is gold, Litecoin is silver. Litecoin is based on the fundamentals of how the peer-to-peer system works on Bitcoin, but with technical improvements. It has significantly reduced the transfer time from a rather long time for BTC.
4] Ripple: Ripple’s distributed financial technology allows banks around the world to transact directly with each other.
5] Hyphen: Dash, or DarkCoin as they call it, is a top secret cryptocurrency. It is almost impossible for anyone to trace where it was sent. It is more used on the Darknet.
Cryptocurrency price and market capitalization
Currently, Bitcoin is priced around $2,500 (as on Dec 18 it is now touching $20,000!) and has a market capitalization of around $42 billionwhile Ethereum figures are $370 and $34 billion respectively. You can see all the numbers here.
Risks with cryptocurrencies
With most transactions moving online, cryptocurrencies have become a source of concern for banks as they fear that monetary transactions will move online. Attempts would be made to stop it at this level. Recently, the US Congress submitted a bill to make cryptocurrency illegal. The pretext was that he could finance terrorism and corruption.
But in our view, cryptocurrency is here to stay – and if invested carefully and cautiously, you could end up making money!