What Is Crypto / Digital Currency?

Banks traditionally refuse customers who will not be profitable for them, or discourage them from opening an account through the use of high fees. In America alone, 30 million people have no bank account. Instead, the "unbanked" are forced to rely on Alternative Financial Services (AFS), including prepaid cards, payday loans, check cashing and non-bank money orders. All of these are more expensive than the options open to those deemed financially viable.

Digital currencies or cryptocurrencies provide a way of transferring money over the internet. These combine cutting-edge encryption with far-reaching developments in social networking. The resulting advantages that cryptocurrencies offer over traditional methods of payment are truly remarkable. We have used the same way of transferring money for centuries. Even with the advent of the internet, these methods didn't’t really change much. Cryptocurrency is something completely new – so new that it cannot be described in terms of these traditional means of payment. Instead, it’s easier to understand cryptocurrencies in terms of what they can do. For the first time in history, it is possible to send money anywhere on the planet within a few minutes, directly between individuals and completely securely, without relying on any banks, payment companies or other third parties, and virtually free of cost.

A cryptocurrency is a medium of exchange designed around securely exchanging information which is a process made possible by certain principles of cryptography. The first cryptocurrency to begin trading was Bitcoin in 2009. Since then, numerous cryptocurrencies have been created. Fundamentally, cryptocurrencies are specifications regarding the use of currency which seek to incorporate principles of cryptography to implement a distributed, decentralized and secure information economy..

Cryptocurrency is a kind of digital currency that uses cryptography for security and anti-counterfeiting measures. Public and private keys are often used to transfer cryptocurrency between individuals. As a counter-culture movement that is often connected to cypherpunks, cryptocurrency is essentially a fiat currency. This means users must reach a consensus about cryptocurrency's value and use it as an exchange medium. However, because it is not tied to a particular country, its value is not controlled by a central bank. In the case of of Bitcoin, which is the leading functioning example of cryptocurrency, value is determined by market supply and demand, meaning that it behaves much like precious metals, like silver and gold.

What is Cryptocurrency? - Definition from Techopedia. (n.d.). Techopedias. Retrieved May 21, 2014,
from http://www.techopedia.com/definition/27531/cryptocurrency


How Are Coins Created?

New coins are generated, or “mined”, by a network node each time it solves a specific and difficult mathematical problem. In technical terms, mining involves calculating the hash of a block header. This header includes a reference to the previous block, a hash of a set of transactions and a unique 32-bit value called a “nonce”. Block generation times vary by coins but all coins are preprogrammed to release X amounts of coins every Y seconds.

While hundreds of different cryptocurrency specifications exist, most are derived from one of two protocols; Proof-of-work or Proof-of-stake. All cryptocurrencies are maintained by a community of cryptocurrency miners who are members of the general public that have set up their computers or ASIC machines to participate in the validation and processing of transactions.


Proof-of-Work Mining:

This is exactly what it sounds like: you earn coin and transaction fee rewards according to the number of blocks you mine successfully. Once a miner or miners has completed the satisfactory mining of a data block, they earn a number of coins, a share of the transaction fees contained within that block, or a combination of the two. This type of mining requires an investor to take an active part in mining data blocks, which helps verify transaction data and create new coins. With proof-of-work mining, if you don't put in the effort to mine, you won't earn anything extra.


Proof-of-Stake Mining:

In the truest sense of the word, this isn't actually “mining” per se, since there isn't any additional work required on the part of the investor. All you have to do to earn with this method is to hold coins in a given type of digital currency. Your earnings are based upon the number of coins, or “stake,” you hold. The more you invest, the more you are likely to earn. The advocates of this method like to point out that it provides for higher currency security, for those who invest more heavily are more likely inspired to see it succeed. This method is very rarely used alone, for it doesn't provide for any actual mining to take place.



What Is And How Does The Blockchain Work?

Whenever any amount of a digital currency is used in a transaction, the information for that transaction is placed into a digital file. These can be trades between investors or purchases made from vendors. Since many transactions are made in short periods, several new blocks can be generated within an hour's time—this varies from one currency type to another (for example, Bitcoin adds a new block of data every ten minutes). As soon as these blocks are generated, their information is available for miners to process.

Blocks of cryptocurrency transaction data don't stand alone. As they're created and processed, they're interlinked with other blocks into what's known as a block chain. On rare occasion, errors in transaction data are not found immediately, or in the block in which their information is embedded; however, as the processing, or mining, continues, information in the block chain is reviewed repeatedly. Therefore, the further down the chain a transaction is, the more secure and correct its details are.

As blocks are created, they go to the end of the line, and include information from the block immediately before. This interlinked series of data blocks is called a block chain, and offers not only a good historical look at transaction data, but provides enhanced security, as well. Here's how that happens: when the block containing the original data for a transaction is processed, the transaction is confirmed. When each subsequent block is mined, that transaction's data is reconfirmed repeatedly. After several future blocks are successfully processed, the transaction in question now has several layers of confirmation; each block that's processed after the transaction validates its information even further and makes that transaction's information more secure.

We mentioned that when blocks are mined, they generate new coins. What happens if a digital currency has a mining cap, and all the coins that are going to be created already have been? Block generation will never stop as long as transactions are taking place. When this scenario takes place—and it could be several years in some cases before it does—miners will still be able to earn a percentage of transaction fees as their reward. It's projected that, by then, fee rewards will be big enough to make up for the lack of new coins being rewarded to miners.



Is Cryptocurrency Secure?

Cryptocurrency gets its name because it relies on cryptography for security. Coins are cryptographically signed each time they are exchanged, which requires that each coin user have both a public and unique private key. These transactions are maintained in a master registry called the blockchain, which is maintained by all of coin users.

Despite these measures, however, cryptocurrencies are still vulnerable to hacking, largely because coins are stored on individual users’ PCs.

Always practice good infosec and maintain backups of wallets on devices not connected to the internet.

Cryptocurrencies are also less susceptible to seizure by law enforcement or having transaction holds placed on them from acquirers such as Paypal. All cryptocurrencies are pseudo-anonymous, and some coins have added features to create true anonymity.


Investing In Cryptocurrencies:

As you might guess cryptocurrencies can be used as a medium of exchange as well as an investment.

In mid 2010 people were buying Bitcoin for less than a penny each. $100 would have yielded 10,000 bitcoins. In December 2013 those 10,000 bitcoins were worth $12,000,000.

Not everyone held their bitcoins. There is a story out of Florida that in early 2010 a programmer bought 2 pizzas from Papa Johns at a cost of 10,000 bitcoins.

6M dollars a pizza in December 2013. 



Much of what has allowed CrypoCurrencies to grow at such a rapid rate is that it is independent of banking institutions. Bitcoin transactions are made through a user network based on cryptographic proof. The advantage here is that there is no need to trust a third-party middleman. Without the need to go through a bank or other financial institution, users can make effortless transactions that are quite secure. This gives CrypoCurrencies a flexibility that users don’t get with banks or even institutions such as Paypal, which may charge a fee for each transaction. Bitcoin transactions carry no service fee. This fact alone has made the currency particularly attractive internationally and lowered the barrier to entry for new users.



One of the strongest factors that CrypoCurrencies has in its favor is its ease of use. There is no need to go to an ATM or to walk into a bank and visit the teller to access it. Even compared to online transactions, the currency is quite easy to use. There is no need to enter lengthy debit or credit card numbers along with security codes; all users have to do is sign into their accounts. They can also make purchases without the added worry of placing sensitive financial information on the Internet that could be susceptible to compromise. This ease of use is part of what's allowed CrypoCurrencies to extend its user base.



CrypoCurrencies decentralization is one of the most important reasons why it - or something like it - has a chance to thrive in the future. Internationally, millions of people are searching for a currency that is immune to the constantly changing movements of national currencies and the roles that governing bodies play in manipulating them. By adopting a virtual currency, CrypoCurrency allows users a level playing field that's much less easily influenced by the actions of sovereign nations. It also provides a platform whereby users from around the world can easily connect without having to worry about exchange rates and all of the costs associated with changing currencies.


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