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Today, we have a great contributed post on understanding the basics of cryptocurrency. Let us know your thoughts in the comments!
With big banks needing bailouts, and the economy in bad shape, more and more people are losing faith in traditional currencies. And it’s understandable; with people’s money being lost, public opinion will always suffer. This has prompted a search in some, for a new way to organize the economy.
The results of this are cryptocurrencies. Being mined and passed from wallet to wallet; they’re the next big thing. But what exactly are they?
Cryptocurrencies are a digital representation of money. They’re used just like normal money; you can buy things with them, and sell things for them. The first of these currencies to exist was Bitcoin, which still exists to this day.
When a cryptocurrency is born, it’s creator defines a rate at which the currency can be mined, along with a limit on how many units can be in circulation at any given time. This is done to replicate real mining processes, with the value of traditional money is usually a representation of a precious metal and other valuable objects.
Every cryptocurrency is decentralized. This means that no governing body has any power or influence over them, and as such, means that they can’t be regulated or confiscated. For some, this makes them a good enough candidate for a new currency.
Other examples of cryptocurrencies include; LiteCoin, DogeCoin, OneCoin and FeatherCoin.
Cryptocurrencies are mined by computers! Complex algorithms are given to the computer to solve, and once it solves one, you are rewarded with currency. As more and more of a currency is mined, the harder each algorithm gets. This raises the value of the currency, as the resources required to mine it are greater.
Unfortunately, for currency mining to be lucrative, you ideally need a farm of specialist mining systems. Using your home computer is a waste of time, and will destroy the lifespan of your components.
Cryptocurrencies are passed around within a peer-to-peer network. This means that if you have 200 coins, and you send someone 100 of them, everyone on the network knows that you have 100 coins left.
So, if you then try and transfer 200 coins, everyone will know that you can’t, and you won’t be able to. To stop people from being able to fake or alter transactions, the currencies use cryptography. Hence the name “cryptocurrency.” The only data associated with a cryptocurrency “account,” is a wallet ID. This means that whoever has the ID is the owner of the account.
There have been many cases of cryptocurrency theft. The biggest of which is the infamous case of Mt. Gox; who lost over $350 million worth of BitCoin. The theft occurred because of a back door in the software Mt. Gox were using. This allowed someone to sneak in and take everything. And all of it is untraceable. So maybe they’re not entirely safe, then.
Whether or not you trust them, you must admit that cryptocurrencies are pretty cool. They provide a way for people to make completely untraceable transactions. And when in the right hands, with the right security measures, these currencies can be incredibly secure.