Cryptocurrency- Where does the money come from? For newbies like me
Often if I talk to someone about cryptocurrency and steemit they ask this question. Where does the money come from? Even after a long explanation they still don't understand properly. Before we can even attempt to answer the money question, we first have to understand about a block chain.
What is a block chain?
A block chain is software used on a computer system where records can be stored, and facts can be verified by anyone. No one can edit records because all the information is available and accessible to everyone. Block chains store information across the network of personal computers which makes them decentralized. In other words there are too many people that use the system, which makes it difficult to corrupt. The people who run this system use their computers to hold bundles of records submitted by others - like you and me here on Steemit.
These bundles of records are called blocks. The block chain then uses a mathematical formula that prevents any information stored on the block, to be counterfeited or even changed. So once something is on the block chain it is there forever. Instead of being controlled by one single administrator (like a bank) the block chain is decentralized. There is no exact definition for the word decentralized so to easily understand this, all you have to know is that a block chain is not controlled by one person or government. A block chain is controlled by the people that use it.
Now that we understand what a block chain is we can explore further.
Where does the money come from?
The most well-know online currency is called Bitcoin. So where did the first bitcoin come from? The first bitcoin was actually mined, from block zero. That was the first block ever and is also called the Genesis block. The Genesis block contained an algorithm or a mathematical formula to firstly create the Bitcoin, and then mine a Bitcoin. You can read here about the history of Bitcoin. Bitcoin is a digital currency that can be used as a form of payment. In reality anyone can create their own online currency. The trick is to find people interested in buying it. We can use Bitcoin for any transaction if a supplier is willing to accept it.
Think of it this way. The more suppliers willing to accept the currency, the higher the price of the currency. On the exchange the price for various digital coins differ. This is simply because some coins are more in demand than others. These coins are only more in demand because there are so many suppliers that accept it.