How Cryptocurrency Works

How Cryptocurrency Works

Cryptocurrency is a currency created by solving algorithms. The currency is produced by an algorithm that gets more complicated each time it gets solved. The more people who solve the algorithm, or more technology used, the faster the problem is solved. Once an algorithm is created, it becomes slowly harder to obtain a currency, making the currency stable due to limits in technology and workers. 

The process of solving these algorithms is called mining. An algorithm is split into chunks and then reassembled to solve the equation. This is called blockchain mining, each user solved a percentage of the chunk or block or the algorithm, and then receives equal payment for their work. The work is simply a computer running a program that solves the algorithm. As the algorithms become harder to solve, the more computer power it takes to solve the algorithm. 

Companies have begun to use warehouses full of computers simply for mining cryptocurrency. These warehouses are usually located in sunny and/ or cold places to use solar power and natural cooling to their advantage. Computers usually consist mainly of multiple graphics cards that are all wired to one computer. These graphics cards are high powered and eliminate the need for multiple computers, it simply uses the power from all of the cards. Some specially developed mining rigs have emerged that are specifically engineered for mining cryptocurrency as well. 

There are multiple thousands of cryptocurrencies. Some currencies fail and without enough people solving the algorithm, are not used or lost. Other currencies are sought after, like Bitcoin, which has been known to sell for over $30,000 USD per coin. Cryptocurrencies are seen as an investment that will never decrease in value as long as people continue to trade them, and their value is solely based on investors, not in any form of physical value besides how much of the currency is traded and its value based on that. 

I cannot give financial advice, given I don’t have any qualifications in the financial or investment industry to do so. But I will note that cryptocurrencies are not backed by anything, and are seen as an unstable investment. While many claim to have made lots of money from cryptocurrency trading, there are also stories of people who have lost lots of money, and all traders should acknowledge that since cryptocurrencies value is based solely on how much is traded, there will be losers and winners, unlike the stock market which shares can be held and go up in value as a company goes up in value. 

Cryptocurrency offers a unique and anonymous way to hold and give money, but volatility in the market is a huge downside. Not to mention the fact that they are not backed by anything feasible besides a computer program whose value is determined by the technology used to solve it. While my personal opinion is ‘buyer beware’, cryptocurrency is still a neat new way to manage money and will remain popular as a way to generate income and invest in the online community.  


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