What to Know About Cryptocurrency

WHAT IS CRYPTOCURRENCY?

Cryptocurrency has been a popular topic of discussion for several years. However, at the end of 2017, with bitcoin futures trading beginning on the Chicago Board Options Exchange and Chicago Mercantile Exchange, the conversation has seemed to reach a fever pitch. But what is cryptocurrency? And what’s behind it’s meteoric rise? Like money, a cryptocurrency is a medium of exchange. However, the cryptocurrency is virtual or digital, meaning that there is no physical coin or bill that owners of the currency possess. The “crypto-“ part of its name comes from the fact that it uses cryptography to secure and verify transactions. Additionally, a common characteristic of many cryptocurrencies is their decentralized nature: Whereas typical currencies are issued from a central https://medium.com/@trexcoin bank, cryptocurrencies cut out the middlemen as a peer-to-peer system. This decentralization is touted as one its principal benefits, as it might increase transaction speed and let users avoid fees charged by banks and other more traditional financial institutions.

HOW DOES CRYPTOCURRENCY WORK?

To realize digital cash you need a payment network with accounts, balances, and transaction. That‘s easy to understand. One major problem every payment network has to solve is to prevent the so-called double spending: to prevent that one entity spends the same amount twice. Usually, this is done by a central server who keeps record about the balances.

In a decentralized network , you don‘t have this server. So you need every single entity of the network to do this job. Every peer in the network needs to have a list with all transactions to check if future transactions are valid or an attempt to double spend.

But how can these entities keep a consensus about these records?

If the peers of the network disagree about only one single, minor balance, everything is broken. They need an absolute consensus. Usually, you take, again, a central authority to declare the correct state of balances. But how can you achieve consensus without a central authority?

WHAT IS CRYPTOCURRENCY MINING?

Cryptocurrency mining is painstaking, costly and only sporadically rewarding. Nonetheless, mining has a magnetic appeal for many investors interested in cryptocurrency because of the fact that miners are rewarded for their work with crypto tokens. This may be because entrepreneurial types see mining as pennies from heaven, like California gold prospectors in 1849. And if you are technologically inclined, why not do it?

However, before you invest the time and equipment, read this explainer to see whether mining is really for you. We will focus primarily on Bitcoin (throughout, we'll use "Bitcoin" when referring to the network or the cryptocurrency as a concept, and "bitcoin" when we're referring to a quantity of individual tokens.

The bitcoin reward that miners receive is an incentive which motivates people to assist in the primary purpose of mining: to support, legitimize and monitor the Bitcoin network and its blockchain. Because these responsibilities are spread among many users all over the world, bitcoin is said to be a "decentralized" cryptocurrency, or one that does not rely on a central bank or government to oversee its regulation.