When the average person hears the word “cryptocurrency,” naturally the first thing that comes to mind is Bitcoin, isn’t it? Okay, perhaps Ethereum might be starting to creep into the minds of what are still considered to be early adopters of the crypto-technology which goes into the making and management of cryptocurrencies, among quite a few others, of course. There is more to cryptocurrencies though and understanding how they work will require a look beyond the likes of Bitcoin, Ethereum, Litecoin, etc.
The underlying technology which powers cryptocurrencies is called the block-chain and it simply refers to a public ledger system which is used to record and store all the records associated with the transfer of cryptocurrencies. With that in mind it’s easy to see that there are uses for the block-chain beyond the creation and management of cryptocurrencies like Bitcoin, but for now the world appears to be fixated on the monetary value aspect of it.
In a nutshell though, the block-chain is comprised out of a selection of decentralised computers, each of which contribute to the creation and management of cryptocurrencies, by storing all the transactions as records which are essentially amended with every subsequent transaction that takes place.
Mining refers to the process that’s associated with the creation of new cryptocurrency units. When you mine Bitcoin, for example, what you’re essentially doing is “lending” the processing power of your device to the block-chain network, so that the complex mathematical equations which go into the creation and management of cryptocurrency transactions can continue to be solved.
At the most basic of levels, this concept pretty much just entails the discovery of “new,” complex numbers which can only be arrived at through the application of the collective computer-processor (or graphics card) power of all devices which are plugged into the network to help “mine” these complex numbers. Complex encryption is used, hence the reference to crypto and so every time each of these new complex numbers is discovered, its rarity gives it its value.
Simply put, a cryptocurrency unit such as a single Bitcoin is nothing but a rare number which can only be arrived at by complex encryption-based mathematical formulae which in turn can only be solved by the collective network of powerful computers known as the block-chain. What gives this unit of currency its value would then be how much value is assigned to it on account of how much somebody is willing to pay for it.
It has become a medium of exchange, priced against existing fiat currencies such as the US dollar.
The future of crypto-technology (the block-chain)
Since the block-chain is basically just a public ledger system, its future perhaps lies in a more widespread implementation, where we’d have something like the legal system making use of a similar record-keeping mechanism to operate more efficiently. The world kind of needed an introduction to the block-chain via cryptocurrencies such as Bitcoin, just so that more people could be aware of the underlying power of crypto-tech and the block-chain.