Disclaimer: Nothing on this Site constitutes professional and/or financial advice. Do your own research before investing.
Cryptocurrency is a complicated topic for many people, and as it becomes more and more popular, a lot of people are wondering just how cryptocurrency works, how you can invest in it safely, and how you can put it to use.
This is not intended to be a complete guide to cryptocurrency. There are many more elaborate guides on the Web for the curious. But I am trying to put together a quick and simple how-to guide for beginners who want to learn more.
How Cryptocurreny Mining Works
There are two types of cryptocurrencies: coins that are mined, and coins that are issued by companies, governments, or other organizations.
Coins that are mined work the same way that gold works: It’s extremely difficult to get a coin. The mining process requires using some sort of computer code (a “program”) that solves a difficult puzzle in exchange for a few coins. The more computers that solve that puzzle, the easier it is for the puzzle to be solved, and so more coins will be generated.
In the early days of cryptocurrencies, the mining process was very energy intensive. Miners used large warehouses full of very powerful computers that were left on 24 hours a day, 7 days a week.
This was often an environmentally bad process because these warehouses were extremely inefficient at generating electricity. So today, the mining process has evolved to make it much more environmentally friendly. Mining is now done on the cloud, and often run through a cloud provider like Amazon, Azure or Google. The cloud provider pays the mining company in credits, which the mining company uses to power their operations.
Mining companies make money by selling the credits they generate. They are able to make money because, essentially, they are buying electricity at wholesale prices and selling it at retail. They can make a profit on these credits because of the massive cost savings in running their operations on the cloud rather than in their own warehouses.
Because there are only a finite number of bitcoins to be created, there’s a built-in incentive for miners to mine. Because more mining means more coins, more people are going to try and mine bitcoins. And because mining is so competitive, it means that there are always going to be miners ready to take bitcoins off of your hands if you find one.
How cryptocurrency trading works
Cryptocurrency trading is different than trading other assets. In traditional stock markets, stocks are traded on a stock exchange like the New York Stock Exchange. A stock exchange is where buyers and sellers can come together and exchange assets.
But in crypto, assets are exchanged directly between users on a decentralized ledger, and trades don’t have to go through an intermediary like a stock exchange. Instead of an exchange, traders on cryptocurrency exchanges are matched with others who are interested in the same asset, and they transact directly with one another.
This direct peer-to-peer exchange is the biggest difference between crypto exchanges and stock exchanges. Because of this peer-to-peer exchange, the transactions take place much more quickly and with lower fees.
But for the sake of convenience, there are centralized exchanges for cryptocurrencies as well. Some of the more popular ones are Binance, FTX, and Coinbase. There are also decentralized exchanges in operation, which help to facilitate peer-to-peer trading at scale.
How cryptocurrency affects the economy
Cryptocurrencies are unique in that they allow for peer-to-peer transactions that are not controlled by banks or governments. The way it works is simple: Instead of having a central authority that approves of and validates transactions, the transactions take place directly between two individuals. There are no banks involved in this process, so transactions happen instantaneously.
There are other cryptocurrencies like Litecoin that are designed to be a little bit faster than Bitcoin. Other cryptocurrencies are designed to have lower transaction fees or higher transaction speeds. This gives people more options when they decide which cryptocurrency to use for their transaction.
But while cryptocurrencies are easy to use for small transactions, they have a lot of potential to change the way we do business in a number of industries. Here are a few examples of industries where cryptocurrencies may have a big impact in the near future.
Payment Processing
Today, when you make an online purchase or pay for something using a credit card, you’re paying a transaction fee to the credit card company and the vendor. Because of this, merchants tend to prefer customers who use credit cards or bank accounts over customers who use cash.
With cryptocurrency, though, this isn’t an issue anymore because the cryptocurrency payment goes directly from your bank account to the merchant’s bank account, without any fees or intermediaries. There are no transaction fees associated with sending cryptocurrency to someone else, so it’s an attractive payment method for vendors who want to attract new customers.
There are a few companies already offering cryptocurrency payments, like BitPay, that allow vendors to accept cryptocurrency as payment without any extra fees.
How cryptocurrency started
Bitcoin was the first cryptocurrency. It was developed by an anonymous programmer who called himself Satoshi Nakamoto.
The idea of cryptocurrency as we know it today first came into existence when Nakamoto posted a white paper online in 2008 called “Bitcoin: A Peer-to-Peer Electronic Cash System.“
Nakamoto outlined what he thought would become the foundation of a new type of currency and decentralized financial system. His proposal was called “Bitcoin,” but that name was never used officially. The name came later on as a nickname.
At first, Nakamoto’s idea was met with skepticism. No one knew if it would really work.
But after several years of development, Nakamoto’s concept took off and evolved into what we know today as cryptocurrencies like Bitcoin and Ethereum.
How cryptocurrency affects global society
The main goal of Bitcoin is to become the world’s first cryptocurrency. While Bitcoin may not have reached this goal yet, it is currently the most successful cryptocurrency and has had a significant impact on society and the global economy.
Bitcoin has been used to make purchases on the dark web, has been accepted as payment at a variety of different companies, has been used in Ponzi schemes and frauds, and has even been used for terrorist financing. But it has also been used in many legitimate ways that have had a positive impact on society.
One of the biggest ways that Bitcoin has helped people is by giving people control over their own money. The original idea behind Bitcoin was to create a digital currency that was controlled by its users and was not subject to inflationary pressures caused by governments or corporations. Because there was no central authority that issued Bitcoins or regulated its supply, the value of Bitcoins could only be determined by how much people were willing to pay for them. This allowed for the price of Bitcoins to increase and decrease as demand for them changed over time.
As more and more people began using Bitcoins as a medium of exchange, more and more merchants started accepting them as well. This led to the creation of cryptocurrency exchanges where people could trade their Bitcoins for different types of cryptocurrencies and fiat money. These exchanges have allowed for a wider variety of currencies to be used as payments, and they also give people more control over their money by giving them more options when it comes to investing or trading their money.
In conclusion, Bitcoin is one of the most successful cryptocurrencies out there, and it continues to evolve and adapt as it enters a more mainstream phase in its development. If you are interested in learning more about how Bitcoin works and what its impact has been on our society, this is a good place to start.