The Status of Cryptocurrencies as Investments

Most people who think of cryptocurrency may as well think of it as cryptic currency. In fact, many people today seem to know what it is in general, although they don’t, many people seem to talk about it as if they do. Hopefully, this article will clear up some of the aspects of cryptocurrency so that when you’ve finished reading it, you’ll have a much better idea of what it actually is and how it actually works.

Cryptocurrency may be for you, or it may not be. But after you’ve read this article in full, you will have more knowledge on and about it that most people don’t have. And will be able to speak about it with a level of confidence that most people also don’t have when it comes to this sort of thing.

There are already many people that have made themselves millionaires by dealing in and investing in cryptocurrency. So obviously there is a lot of money in this industry to be made by those that do. Although there are a lot of pitfalls and a steep learning curve to it all too.

In short, cryptocurrency is an electronic/digital form of currency. That much is what it is in a short and sweet way. But there’s nothing really short and sweet about how it actually has the value to it that it has. That’s something that’s learned when you invest in cryptocurrency such as Bitcoin.

A longer description of what cryptocurrency is, is that it’s a digitized, decentralized form of currency that is made by using cryptography. According to the Webster Merriam dictionary it’s a computerized encoding and decoding of information. It’s the same foundation that makes things like debit and credit cards and online banking and eCommerce systems available.

As cryptocurrency is decentralized, it means that it’s not supported and backed by banks and banking institutions. Rather it’s a very complex arrangement of many different algorithms which are encoded into very complex algorithm strings. Where it gets its value from is how intricate it is and the security it has from hackers and cyber criminals. Quite simply, it’s just too complex and too difficult to reproduce it.

What else makes cryptocurrency in direct opposition to normal money such as fiat money is that fiat money only gets its value from the government law or ruling that it has on it. All currencies such as the pound, the dollar, the yet, the euro etc are all examples of this. These are defined as fiat money, or legal tender. 

Another thing that makes cryptocurrency so valuable is that, unlike fiat money, or even commodities like gold, silver etc, there is only a certain amount of it. In fact, there was only 21,000,000 algorithms that were made. No less and no more. And unlike money, it can’t be changed, altered or tampered with in any way. You can’t print more of it like governments do just to pump some more money into the system without any backing. 

What cryptocurrency provides people with is a way to buy and sell things without needing to use any government institution such as a banking system that can track your money and spending. And in a world where the economy is very unstable, this provides a very stable platform for people.

Another positive bonus side of cryptocurrency is how anonymous it is. And while this can be a double edged sword in that it means it can be misused or used for nefarious reasons, even regular cash money can be misused too. But it just helps keep the government from tracking all of your purchases.

Cryptocurrencies come in many different shapes and sizes and forms. The first and most widely known of all of course is Bitcoin. Bitcoin was the first and standard form that all and any other cryptocurrencies come from and pattern and base themselves on. They are all made with complex alpha numerical computations used with a complex encoding tool. Other such cryptocurrencies are Litecoin, Dogecoin, Namecoin, Wordcoin just to name a few of them.

spread of physical bitcoins

It’s quite interesting and fascination how cryptocurrency how cryptocurrency is brought into existence. Take gold for example, it has to be mined from the ground, but cryptocurrency is just an entry in a ledger that’s stored in computers all around the world. You have to use mathematical algorithms to mine these entries. You have to run complex computational analysis to find and mine these ledgers that are known as blocks.

To produce an exact pattern the miner must find the data within the cryptographic algorithm. It’s only found when it’s applied to the series and that’s when they find a block. The block is only unencrypted when a matching data series matches up with the same algorithm. When a miner matches up a data series on the block, it’s then been unencrypted and the miner is rewarded with a set certain amount of cryptocurrency.

As if that wasn’t hard enough to do on its own, as time passes by, the reward you get decreases and the cryptocurrency becomes much scarcer and harder to find. On top of this, the complexity of the algorithms used or searching out and mining new blocks is also increased too. Basically, it just gets harder and harder computationally to find a matching series of blocks. 

Now if you want to be a miner of Bitcoin you can be. The founders of Bitcoin made their mining tool to be open source so that anyone can and it’s free to do so too. However, some places do charge you for it as a service but it can be done for free too. You’ll just need a powerful computer running 24/7. Professional miners use specialized computers that are made especially for mining it. 

As a miner you will have to keep a ledger of transactions and act as a kind of auditor so that no coin is ever duplicated. That protects the system from going haywire and stopping it from being hacked too. Miners are rewarded for this through the operation of mining on their computer. The cryptocurrency they mine is kept in files on their computer(s) or some other device such as a compact flash card or SSD which are known as wallets.

Let us look at a few definitions we’ve used so far and what we have learned:

– Cryptocurrency: an electronic form of currency; AKA digital currency. 
– Fiat money: legal tender; it’s government backed and is used in banking systems. 
– Bitcoin: the original form of crypto currency and the gold standard.
– Altcoin: another cryptocurrency based on the same process as Bitcoin is but with some differences in the coding. 
– Miners: a person or group of people that use their own resources to mine digital coins (computers, electricity, space).
– Wallet: a file that’s stored on your computer or some other device.

Let’s go over the cryptocurrency system in a nutshell:

– It’s a form of electronic / digital money. 
– It’s mined by people who use their own computers & resources to find coins. 
– It’s a stable, but finite form of currency with only 21,000,000 Bitcoins ever produced. 
– It doesn’t require any government or bank to make it work as it works on its own. 
– The pricing is deduced by the amount of coins found combined with demand from people to have them.
– There are many different forms of cryptocurrencies, where Bitcoin was the first of them all.
– It can bring great wealth although like anything it carries its own risks and pitfalls.

Cryptocurrency can be and is a truly wonderful and fascinating thing. And it’s something that can prove to be very lucrative for those ho know about it and learn how to mine or earn it. If cryptocurrency is something you want to know more about then you should have done so from this article. But there is so much more about it than I’ve covered here. Whether you use it for making the odd payment with, or for investing with, it has a lot of practical uses and will likely be around for a long time yet. If not completely replacing all other forms of money and payment altogether!

Want to learn more about investing/trading? Check out my investing web-site.