What are Cryptocurrencies and Cryptocurrency Mining?

The importance of money as a form of judging the ownership of  a person’s assets is known since late stone age. It started with stone  nuggets, then iron tablets followed by gold and silver coins and now  paper money and electronic money. One notable fact is that throughout  the timeline, the number of money people possessed increased and the  value of each unit decreased. This happened till a stage when the  banking system had to finally digitalize their currency, and it is all  stored in reserve banks in a digitalized form. One step ahead of the  agenda is the concept of Cryptocurrencies. This is different from money stored in banks which can be accessed indirectly through debit/credit cards and online banking.  

What is Cryptocurrency

A Cryptocurrency is an online version of money, a digital asset to be precise. The name is derived from the Cryptography,  which is used to encrypt transactions and control the production of the  currency. It is a strictly monitored process, as it uses the Blockchain Technology. To put it very simply, Blockchain technology is a distributed database that is used to used to manage & maintain a growing list of data blocks, using a P2P network collectively. These data blocks may be situated in different locations and not connected to the same Processor. A database is a collection of records. A distributed database  is one which may be located in different locations and not be attached  to a common Processor – but it may be located in the same or different  physical locations and dispersed over a computer network. In a  Blockchain, once a piece of data is recorded, it cannot normally be  edited or changed. Though neglected earlier, banks and financial institutions and  companies are getting increasingly aware of its importance. Rather, they  have a fear of losing their market of ‘digital cash‘ to the new currency. While the security and ease of exchange make it an ideal medium of  monetary exchange for the future, few know about Cryptocurrencies, and  it is believed that these are unsafe. Although a recent surge in the  price of Bitcoins  and simultaneous boasting of the same on social media generated a lot  of interest, it could still be years before it enters the mainstream. 

What is Cryptocurrency Mining

To mine cryptocurrencies you need a powerful hardware as well as  software combination. Since the value of a currency depends on the  number of units of the currency available in the market, it should be a  carefully monitored and a very reliable process. Cryptocurrency mining  is simply the process of generating new units of the Cryptocurrency. To understand it better, let is assume a large national economy with  trillions of dollars in all banks altogether. Now, since it is not  physically possible to store all these currency notes in banks, they  store them in a digital format with a central reserve bank. The reserve  bank maintains a digital record of what it owes to which bank but  doesn’t keep the notes in a physical form. Whenever it needs to push  money into the system and is short of notes, it simply gets them  printed. Despite the fact that the concerned reserve bank can print as many  notes as it can, it doesn’t do so on its own without reason. This is  because when we print more currency and push more money into the market,  it doesn’t make people riches, it simply devalues the existing currency  and prompts inflation. The more the units of a currency exist in a  market, the more divided its value becomes.    The same happens with Cryptocurrency. Mining of Cryptocurrency is a  carefully monitored process to ensure the value of the existing units  does not depreciate. 

How is price of a Cryptocurrency determined

While the market prices of various Cryptocurrencies vary a lot, their  liquidity remains a common trait. As of present, the value of  Cryptocurrencies fluctuates a lot. The price of a Cryptocurrency, like almost every other product and  service, depends on demand and supply. If more people demand a specific  Cryptocurrency and it is short in supply, its value increases. Then more  units are mined to maintain the flow. Many however have chosen to  restrict the number that can be mined. For instance, the number of  Bitcoins is currently restricted to a maximum of 21 million. 

List of Cryptocurrencies

While the actual list of Cryptocurrencies is huge – there are over  800 cryptocurrencies as of date, and so we can only discuss the most  prominent few here. 1] Bitcoin: Bitcoin is the most popular and the highest rated  Cryptocurrency. Rather most think of it as the only Cryptocurrency  available in the market. Valued somewhere near $600 per Bitcoin by  mid-2017, it became the reason for interest in the Cryptocurrency market  when its rate surged suddenly. 2] Ethereum: While still at its nascent stage, this currency  launched in 2015 might be the Cryptocurrency of the future. It is a  decentralized, secure and could be used to trade almost anything. 3] Litecoin: They say that if Bitcoin is gold, Litecoin  is silver. Litecoin is based upon the fundamentals of how the  peer-to-peer system works on Bitcoin, but with improvements on the  technical front. It has substantially reduced the time of transfer from a  rather long one for BTC. 4] Ripple: Ripple’s distributed financial technology allows for banks around the world to directly transact with each other. 5] Dash: Dash, or DarkCoin, as the call it, is a highly  secretive Cryptocurrency. It is almost impossible for anyone to trace  where it has been routed. It is more in use on the Darknet.

Cryptocurrency Market Price & Capitalization

Currently, Bitcoin costs around $2500 and has a market capitalization of around $42 billion, whereas Ethereum the figures are $37o and $34 billion respectively. You can see all the figures here. 

Risks with Cryptocurrencies

With most transactions shifting online, Cryptocurrencies have become a  cause of concern for Banks as they fear money transaction business  moving online. Attempts would be made to stop it at this level.  Recently, the U.S. Congress submitted a bill to make Cryptocurrency  illegal. The pretext was that it could fund terrorism and corruption.     But in our opinion, Cryptocurrency is here to stay – and if one  invests conservatively and carefully in them, one could end up making  money!