For much of the population, the concept of cryptocurrency is still a mystery. How is cryptocurrency different from traditional money? Where does it come from? How is it used? In this post, we’re going to try to answer these questions by breaking down the concept of cryptocurrency into its simplest components.
In order to understand cryptocurrency, first, we have to understand what currency is. We all know that currency equals money and that the U.S. dollar is an example of a currency. Pretty much every country on Earth has its own form of currency. We call these fiat currencies.
The word “current” implies a flow of something like water or electrons. Simply put, currencies are used to track the flow of money.
One thing that fiat currencies have in common is that they can be represented by paper money and metal coins. Cryptocurrency, on the other hand, exists purely in the digital realm. There are no paper notes to put in your wallet and no metal coins to put in your pocket.
Most money today is digital
Most of us don’t carry around or store a lot of paper money or coins. Instead, we entrust our money to banks. Banks, too, don’t keep a massive pile of cash around. For the most part, all fiat currencies are tracked digitally. We can also send money and pay for things electronically. So the concept of digital money is nothing new.
So what’s different about cryptocurrency?
Encryption + Currency = Cryptocurrency
Banking platforms and cryptocurrency networks have to protect sensitive information during transmission. In order to keep our funds secure and hidden from prying eyes, hackers, and thieves, they have to scramble the information using an unbreakable code. The transmission is then descrambled at the other end. This encoding technology is known as encryption. “Cryptography” is the science of digital encryption.
The word “cryptocurrency” is a combination of “cryptography” and “currency.” But that still doesn’t tell us the difference between cryptocurrency and fiat money.
Centralized vs. Distributed Ledgers
The difference comes in the method of accounting. Fiat money is accounted for on a centralized ledger. Cryptocurrencies are accounted for on a distributed ledger. What does that mean?
A centralized ledger is one that runs on a walled-off computer network that’s owned and controlled by a government or business. Centralized ledgers are not open to public use. A distributed ledger runs on every computer that takes part in the network.
Think of a cryptocurrency network like the Internet. No one owns the Internet. It runs on millions of privately owned computers.
This network-enabled, automated accounting technology is called a blockchain. This is because individual transactions are gathered into blocks that are chained together to form a permanent, immutable history of transactions.
The blocks of transactions are confirmed by privately owned computers that choose to take part in the network. Once a block has been confirmed, the ledgers are updated on every computer in the network.
Because cryptocurrency ledgers are distributed across a large network of computer systems, they are impossible to hack. In order to change an entry in the ledger, you would have to change the block on every computer in the system effectively simultaneously which is impossible.
Centralized vs. Decentralized Cryptocurrencies
If a cryptocurrency network is owned/controlled by a government or business entity or other authority, then the network is said to be centralized.
However, if a network is owned by no one, open to public use, and controlled by those who use it, then it is said to be decentralized.
All of the accounting of fiat money is done using computers and software owned and operated by centralized authorities. Conversely, all decentralized cryptocurrencies are accounted for using a publicly-available distributed ledger.
What are the benefits of cryptocurrency?
Aside from transactions being unhackable and immutable, there are several other important benefits to cryptocurrencies.
- Decentralized cryptocurrencies are autonomous
Decentralized cryptocurrencies such as Bitcoin are not under the control of any centralized authority. The entire network is autonomous and open to public use. Decentralized cryptocurrencies can not be seized by any government or business.
- Banks are not required
Banks have two downsides. First, they can be very slow. When depositing a check or transferring funds from bank to bank, funds can take days to show up in your account. Moreover, banks charge money for their services (or make money on the funds they hold). Blockchains can confirm transactions and update balances in a matter of minutes or milliseconds and oftentimes for a fraction of a penny.
- Transparent and immutable economics
Because decentralized blockchains run on open-source software, the tokenomics (economics) of a cryptocurrency are transparent. They can’t be changed unless there’s a consensus among the network. For example, there will never be more than 21 million bitcoins. Governments, on the other hand, can increase the supply of fiat money at will and give the newly minted money to whomever they want, thus reducing the purchasing power of the currency.
- Unhackable and impossible to counterfeit
A distributed ledger run on a blockchain is unhackable and immutable. Every entry in the ledger lives on forever. No one has the power to change it. Moreover, cryptocurrencies are impossible to counterfeit.
What is a cryptocurrency used for?
The potential uses for cryptocurrencies are unlimited. Anything you can do with traditional money you can do with cryptocurrencies. There are also countless special-purpose cryptocurrencies that have very specific uses that aren’t possible with fiat money.
Some of the functions of cryptocurrencies include:
- A safe place to store wealth (can’t be confiscated)
- Automated payments of any kind (programmable money)
- Decentralized financial services (DeFi) such as lending, borrowing, insurance, etc. (without the need for a bank)
- Virtual money, aka tokens, can be utilized by all types of organizations such as businesses, clubs, electronic games, loyalty programs, etc.
- Fast, secure, and inexpensive file storage that’s unhackable and immutable
- Low-priced micropayments such as video and audio streaming payments
And much, much more.
Who uses cryptocurrencies?
Cryptocurrencies are still in their infancy. While consumers are starting to dabble in crypto via applications such as PayPal and Robinhood, adoption is still very low compared to future projections. As of early 2022, less than 20 percent of Americans owned any cryptocurrency.
Think of the stage crypto is at now as you would think about the very early days of the Internet — before things like America Online and the Worldwide Web came into being. The Web was built on top of the Internet Protocol. As more and more organizations build applications on top of blockchains, cryptocurrencies will begin to see exponential mass adoption.
What is Mining City?
Mining City is a platform that provides mining plans, giving users access to hash power and mining rewards. The idea for the platform was conceived in October 2019 by Greg Rogowski, the brand owner of Mining City and the CEO of Prophetek.
Prophetek is the company behind the Mining City platform. It is based in Cyprus, a country with clearer cryptocurrency regulations than many other European countries.
A technological process, combining low electricity costs with storage and miner improvements, known as “Smart Mining,” became an effective way to obtain BTC.
Is Mining City Legit?
Mining City provides real hash power for users. Mining City also leaves banned markets and takes a compliant approach to new laws and regulations, adjusting to global markets.
There have been many widespread scams and attempts to defraud cryptocurrency customers over the past several years, which has prompted increased regulation and efforts by responsible companies to deter fraudulent activities and scams.
The cryptocurrency and crypto mining industries are new and gradually become more and more regulated markets. As new regulations go into effect, reputable market players, like Mining City adjust. This may mean leaving markets where crypto-related activities face new bans. That may also mean having to adjust products or services to stay in line with new laws.
You can follow Mining City’s official social media portals on Facebook, Instagram, Telegram, YouTube and Twitter to observe what Mining City undertakes to adjust to new regulations and requirements and to give Mining City your support in their efforts to become fully compliant.