A cryptocurrency is a digital or virtual currency designed to work as a medium of exchange. It uses cryptography to secure and verify transactions as well as to control the creation of new units of a particular cryptocurrency. Essentially, cryptocurrencies are limited entries in a database that no one can change unless specific conditions are fulfilled.
So they are a currency created not in the vaults of central banks, but on and for the internet.
- Nobody owns it.
- Nobody can print it*.
- Nobody can inflate it.
Crypto currencies posses all the characteristics of true money:
- They are a store a value – They can’t be inflated.
- They are portable – you can carry all your wealth in your back pocket or an iPhone around the world with you.
- They are divisible.
- They are durable – They exist as a code on a network, not in physical form.
- They are fungible.
Before cryptocurrencies were invented, true money was only Gold (That’s why central banks keep gold in their vaults). But crypto currencies have a distinct advantage over gold: They are much more portable. You can send them to the other side of the world on the internet within seconds.
So How Are Crypto Currencies Created?
Crypto currencies are created through a process called mining:
Within a cryptocurrency network, only miners can confirm transactions by solving a cryptographic puzzle. They take transactions, mark them as legitimate and spread them across the network. Afterwards, every node of the network adds it to its database. Once the transaction is confirmed it becomes unforgeable and irreversible and a miner receives a reward – the crypto currency.
So, in essence:
Crypto mining is the process of creating money.
The Process of Crypto Mining
Miners are the single most important part of any cryptocurrency network, and much like trading, mining is an investment.
Essentially, miners are providing a bookkeeping service for their respective communities. They contribute their computing power to solving complicated cryptographic puzzles, which is necessary to confirm a transaction and record it in a distributed public ledger called the Blockchain.