Written By: Eason Yu
Introduction
With the invention of computers, more and more daily items have been converted into digital form. From documents to images to videos, digital versions of their counterparts have made them more accessible and easy to use. In 2008, a digital form of currency was introduced as ‘Cryptocurrency’, and ever since then, the world has been craving to possess more and more of it. And with the rise of cryptocurrency, firms that fed off of cryptocurrencies also benefited massively. Allowing names such as FTX and Binance to grow exponentially, and opening the industry for crypto.
What is Crypto?
Cryptocurrency is a digital currency that has no governing body monitoring it. Without a centralized system, transactions are verified by all existing users and recorded onto each device part of that currency’s system. Well-known cryptocurrencies consist of Bitcoin, Dogecoin, etc. ‘Normal’ currencies such as the ones we use to pay everyday have a centralized system, and gets monitored by a government to maintain the integrity of the currency itself. However, due to the decentralized nature of crypto currencies, a blockchain system must be implemented to ensure the security and reliability of that currency.
Cryptography
Cryptography is the act of disguising a piece of data through a cipher to make it illegible.The ‘Crypto’ in cryptocurrency originates from the ‘crypto’ in cryptography. Cryptocurrencies have the word, ‘Crypto’ in it as transactions between users are classified. Which means that transactions are conducted where both parties are kept anonymous. The encryption system in cryptography also makes the trading network more secure as hackers are not able to obtain data on the users whenever a crypto exchange occurs.
Blockchains
These act as the security measure of a cryptocurrency. You can imagine it as a row of ‘blocks’ connected by a ‘chain’, hence its given name. And whenever a transaction between two users occurs, a new ‘block’ is created and added to the end of the chain that contains details about the transaction such as the users that are participating in the transaction and the number of crypto transferred. Every block contains a ‘hash’, which is a long chain of hexadecimal values, creating a unique ID for the block, with every block also containing the ‘hash’ of the previous block. All transactions are verified by all users through the creation of the block, providing all users with a copy of the blockchain. If blocks are altered, a new hash is formed on the same block, but the next block still contains the details about the old hash, hence making the rest of the blocks invalid. Therefore, mistakes and hacking can be easily noted and prevented as only blockchains that work are valid within the network.
The Value
Every working currency has a value, allowing us to use money to trade for items in the real world. While the value of the real world currency may be determined by both the market force and each country’s central bank, the value of cryptocurrencies are completely determined by the market forces of supply and demand. In some ways this is beneficial as market forces can drive prices very high if there is high demand for the currency. However, if demand for the currency falls very low, its value would also plummet, making it extremely inconsistent due to the fluctuating value, compared to real life currencies such as the USD where a certain amount of government intervention is applied to maintain control of the currency’s value. For users to make a profit off crypto, just like stocks, they would buy it at a low price and sell it at a higher price.
Crypto Mining
Crypto mining is the act of obtaining cryptocurrency through a mining software. It is called mining since cryptocurrencies are finite, which is why they are valuable and have high demand. Whenever a new transaction occurs, there is simultaneously an opportunity to mine some crypto. In-order to obtain that crypto, crypto-mining softwares has to solve complex mathematical problems created by the crypto software; a correct answer rewarding the user with some crypto currency. During the mining process, the users participating in the mining validates and verifies the transaction, which is why crypto is extremely secure and reliable. However, the mining process is extremely energy-consuming due to the constant problem solving computers need to conduct, making it extremely expensive and costly.
Conclusion
Cryptocurrency is a digital currency but it can be considered an investment or a new and modernized way of trading. Ultimately Cryptocurrency is simply a complex and secure network that allows numbers and digital data to be transferred from one user to another. According to Forbes as of 2023, there are over 22,000 cryptocurrencies available in the market, and with newer forms of digital payment and digital currencies appearing everyday, there is a possibility that someday, tangible cash may go extinct.
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