The Beginner's Guide on How Cryptocurrencies are Created
Using cryptocurrencies like Bitcoin, Litecoin, Ethereum and others is becoming popular every day, and lots of traders find that they can be useful assets in their portfolios. But how do they work? Why are some more valuable than others? And how are new ones created? This beginner’s guide on how cryptocurrencies are created will give you the answers to these questions and more, so you can make your own decisions about whether cryptocurrency trading is right for you or not.
What is a cryptocurrency?
A cryptocurrency is a medium of exchange like normal currencies such as USD, but designed for the purpose of exchanging digital information through a process made possible by certain principles of cryptography. In a nutshell, it is internet money. It is interesting to note that cryptocurrency has been able to present an alternative decentralized option to finance in which anyone can participate regardless of their economic standing. cryptocurrencies are created and can be generated through mining. Miners are paid with fees and newly created coins for supporting transactions and security within the network in which they operate in. A lot of individuals asking what cryptocurrencies such as Bitcoin are, make it hard for regular people to understand how everything works.
A little bit of history about cryptocurrencies
The first cryptocurrency to be created was Bitcoin in 2009. Since then, many other cryptocurrencies have been introduced into circulation. A lot of those were forks off from Bitcoin and over time, more new ones were created. As of 2017, there were more than 1,000 cryptocurrencies already in circulation and their market cap reached $17 billion. The top four cryptocurrencies included: Bitcoin (43% market share), Ethereum (22%), Ripple (7%) and Litecoin (4%). While many of these cryptocurrencies are being traded for legal tender or fiat currency like US dollars, it is important to note that not all these coins can be exchanged for legal tender or cash directly.
Main uses for cryptocurrencies
A cryptocurrency can be used to buy other cryptocurrencies or participate in crowdfunding campaigns; they can also be used to invest in altcoins or promote altcoins. Some of these currencies have more functions than others, with Bitcoin being better suited as a digital store of value rather than an everyday currency that you’d use to buy your groceries. This beginner’s guide will look at how cryptocurrencies were created and why people invented them, what their key uses are, and some common trading strategies for each type of coin.
Who creates these cryptocurrencies?
There are different ways that cryptocurrencies can be created. For example, developers can use an open source project with a software protocol, meaning anyone who knows how to program can contribute to creating it and improve upon it. Another way of creating a cryptocurrency is by hard coding it into a blockchain network. These are commonly referred to as altcoins and they act like any other coin or token within that specific blockchain ecosystem. Because altcoins live within their own ecosystem, they tend to have different uses than standard coins. An altcoin might focus on providing privacy or security for its users; another might serve as a form of online currency that serves another purpose altogether.
Where do these new cryptocurrencies get their value from?
One of my favorite stories about cryptocurrencies is from 2011 when Bitcoin was getting a lot of attention. A reporter asked Jamie Dimon, CEO of JP Morgan, what he thought about Bitcoin; his response was that it’s a terrible store of value. It could be replicated over and over. He then went on to say that if it were him, he would fire anyone at JP Morgan who was trading in it. At first, I thought that response was odd—after all, why would you fire someone for doing something perfectly legal? Well... turns out you wouldn't have to fire someone because they wouldn't be doing anything illegal in trading in cryptocurrencies. The reason why? Because it's not against any laws or regulations to trade in cryptocurrency.