Mastering Digital Currency – What is cryptocurrency? | Mining Cryptocurrency
A cryptocurrency is a medium of exchange, such as the rupee or the US dollar, but is digital in format and uses encryption techniques to both control the creation of monetary units and to verify the exchange of money. It is decentralized digital money that’s based on blockchain technology.
Bitcoin is the world’s best-known cryptocurrency and is the largest in the world according to market capitalization, followed by Ethereum.
You may be familiar with the most popular versions, Bitcoin and Ethereum, but there are more than 5,000 different cryptocurrencies in circulation.
Cryptocurrencies typically use either proof of work or proof of stake to verify transactions. Proof of work and proof of stake are two different validation techniques used to verify transactions before they’re added to a blockchain that reward verifiers with more cryptocurrency.
Mining Cryptocurrency
In traditional financial deals, where two parties are using fiat money, a third-party organization — usually a central bank — assures that the money is genuine, and the transaction is recorded. With cryptocurrencies, a chain of private computers — a network — is constantly working towards authenticating the transactions by solving complex cryptographic puzzles. For solving the puzzles, these systems are rewarded with cryptocurrencies. This process is called mining.
Mining is how new units of cryptocurrency are released into the world, generally in exchange for validating transactions. While it’s theoretically possible for the average person to mine cryptocurrency, it’s increasingly difficult in proof of work systems, like Bitcoin.
How does it work?
Units of cryptocurrency are created through mining and users can also buy the currencies from brokers, then store and spend them using cryptographic wallets.
If you own cryptocurrency, you don’t own anything tangible. What you own is a key that allows you to move a record or a unit of measure from one person to another without a trusted third party.
You can use cryptocurrency to make purchases, but it’s not a form of payment with mainstream acceptance quite yet. A handful of online retailers like Overstock.com accept Bitcoin, but it’s far from the norm.
Until crypto is more widely accepted, you can work around current limitations by exchanging cryptocurrency for gift cards. At eGifter, for instance, you can use Bitcoin to buy gift cards for Dunkin Donuts, Target, Apple and select other retailers and restaurants. You may also be able to load cryptocurrency to a debit card to make purchases. In the U.S., you can sign up for the BitPay card, a debit card that converts crypto assets into dollars for purchase, but there are fees involved to order the card and use it for ATM withdrawals, for example.
Although Bitcoin has been around since 2009, cryptocurrencies and applications of blockchain technology are still emerging in financial terms, and more uses are expected in the future. Transactions including bonds, stocks, and other financial assets could eventually be traded using the technology.
