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: Bitcoins are 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, Ethereum 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.
Read: Bitcoin vs. Litecoin vs. Dogecoin – Cryptocurrency compared.
Cryptocurrency Market Price & Capitalization
Currently, Bitcoin costs around $2500 (As on 18th Dec it is touching $20000 now!) and has a market capitalization of around $42 billion, whereas Ethereum the figures are $370 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!