Cryptocurrency and Crypto Mining – In Simple Words

Cryptocurrency have grown popular for the past few years because there have been a lot of news about people earning  millions of dollars by investing or mining cryptocurrencies. And because of that, many people want to jump in and try earning money out of this new trend.

Now before you jump in yourself, it would be wise to at least have a basic understanding of cryptocurrencies and how crypto mining works. The easiest way to learn about this is first understand our “Regular Currencies” that we use everyday.

What is Currency?

Currency is a system of money used by a  particular organization, usually a country. There are many types of currencies that you probably know like US Dollar, Euro, Peso, and Yen.  These currencies can be traded when you transact in the market place and it can also be converted from once currency to another.  People who work abroad earn a different type of currency so they need to convert their earnings before they could use that money in their home countries.

Example:

In the Philippines, there are millions of Overseas Filipino Workers (OFWs) earning foreign currencies like US Dollars. As of 2018 the conversion of USD to PHP is around  1 USD = 50 PHP

 

When the OFWs send money back to the Philippines, their families need to convert that money into PHP in order for them use it in their local market place

You may have noticed that the conversion of USD to PHP changes everyday.  There are times when 1 USD = 48 PHP and sometimes 1 USD = 53 PHP. This happens because the values of each currency changes all the time based on many factors including the demand for that currency.

Common Question: Why can’t countries just print more money so everyone can be rich?

The money system of the world is regulated by the Central Banks. This is very important to maintain a secure system for world trade. Even if we could just print Billions of cash, doing so  would inflate the value of our currency.

Example:

(This is just a fictional example for simple understanding)

A country named Atlantis has a whole economy worth $1,000. And there are only 10 pieces of $100 bills existing in that country. This means that each bill is equivalent to 10% of their economy.

 

Atlantis’s economy remains $1,000 but one day decides to print 10 more pieces of $100 bills for their people, making a total of 20 pieces of $100 bills existing. That would now make each $100 bill equivalent to 5% of their economy.

 

Atlantis may now have more cash bills existing but the value of their economy remained the same. This resulted to the decreased value of each $100 bill. This is called Inflation.

In order for any  currency or money system to work, it needs to have some form of security system like the Central Banks to prevent people from cheating like unauthorized printing of money and other fraudulent acts.

What is Cryptocurrency?

Cryptocurrency is exactly like the regular currencies explained above. It can be traded, converted to different currencies,  and it’s value changes all the time based on many factors including the demand for that currency. The only difference is it is not regulated by Central Banks.

You should also know that there are many types if cryptocurrencies like for example: Bitcoin (BTC), Ethereum (ETH), Monero (XMR), and Litecoin (LTC).

If cryptocurrency is not regulated by central banks, then how does the system remain secure? Why can’t people just create more Bitcoins for themselves?

Instead of using Central Banks, cryptocurrency is made possible and secure thanks to Blockchain Technology. We can discuss more details about Blockchain Technology in a different article. What you need to understand for now is that Blockchain is like a network of computers constantly and independently verifying each transaction happening in the system to make sure that each transaction is legitimate and security is maintained.

What is Crypto Mining?

It takes a lot of computing power to make the blockchain system work. Bitcoin for example, have millions of transactions happening and would also require millions of computers to verify the transactions.  So they ask  the public to lend their device’s computing power to the Blockchain in order to make the system work.

The process of using  the public’s computing power to make the Blockchain system work is also known as “Crypto Mining”. When you do crypto mining, you are actually lending the computing power of your device to be used in the Blockchain and contribute in the verification process of the transactions in the whole network. In return for lending the computing power of your device, a commission/reward is given to you depending of the amount of computation done by your device. That is why more powerful devices get more mining income.

 

If you have questions regarding this topic or you want to know more about Blockchain Technology, please leave a comment below so I will know if people find this interesting. Thank you very much!

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