Discover what cryptocurrencies are, where they come from and why they’re so popular.
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Mining is the process by which recent cryptocurrency transactions are verified and new units are released.
As a miner, your goal is to compile recent transactions into ‘blocks’ – that is, a cluster of verified transactions – and find a solution to a complex algorithm. Do this and you’ll earn yourself a ‘block reward’, or a set amount of cryptocurrency. This amount varies depending on which cryptocurrency you’re mining: bitcoin’s block reward, for example, is currently 12.5 bitcoins.
Solving these algorithms is a continuous process, and depends on the results of previous algorithms in order to make the next calculation. Similarly, the difficulty of the algorithm can be – and is – regularly adjusted, with the aim of keeping block discovery constant, even as computing power improves. This means it resembles the rate at which commodities like gold hit the market – hence the name ‘mining’.
Cryptocurrencies are a global currency, and far less susceptible to the economy or policies of any single country. They are accessible to everyone, and can be transferred instantly to anyone around the world
Cryptocurrencies are decentralised – they don’t have an official exchange – meaning they can be traded 24 hours a day, seven days a week
Cryptocurrencies tend to experience sudden and significant price movements. This makes them problematic as a currency, but highly attractive as a market opportunity
All transactions are recorded in a shared ledger, and operate on a mechanism which ensures only the sender’s required information – not all their details – are delivered to the recipient
Volatility can bring risk as well as opportunity: wild price fluctuations could see a cryptocurrency lose hundreds of dollars’ worth of value overnight
There’s no perfect way to protect against human error, technical glitches or fraud – and there’s no system in place to reimburse you for losses
Cryptocurrencies are only as valuable as they are perceived to be: despite their growing popularity, there are still question marks over their long-term future
Cryptocurrencies may be free from regulation now, but if new mechanisms are introduced, many of its advantages over fiat currency may be undone
Aligned with a particular nation or group of nations.
|Issued by governments.||
Released through mining.
Supply is mediated by central banks.
Supply is mediated by miners and mining software.
Must be injected into the economy through bonds and other securities.
|Injected directly into the cryptocurrency market.|
Heavily influenced by inflation and interest rates.
Largely uninfluenced by monetary policy.
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