An Insight into Cryptocurrency Basics

Snapshot

• Creating Cryptocurrencies
• Determining the price of Crypto

In recent time’s interest of lots of people in cryptocurrency has reached its all-time high, the reason being curiosity of people with the technology underpinning popular tokens or simply the desire of people to make some money from it.

Cryptocurrency are used by many in the same way as stocks, for profit, but they are different. As in case of cryptocurrency, one is not buying into a company and is only holding a medium of exchange. Also, due to the decentralized nature of blockchain, cryptos are not as regulated as stocks. 

Digital existence of cryptocurrency has raised curiosity among the people especially who are not good with technology. Many questions related to the origin and functioning of Bitcoin have troubled many individuals. 

Creating Cryptocurrencies

Mining is the most commonly used term in the crypto industry as it is the process for distribution of cryptocurrencies. 

Blockchain is used for the development of cryptocurrencies and for all cryptocurrency transactions. For a transaction to complete on blockchain, it is required to be requested or initiated. Confirming the request is validation and is required to be done on a regular basis for effective functioning of blockchain networks such as the Bitcoin network. 

The task of validation is carried out by a network of computers, which reward the network’s native tokens for their services. This activity is determined as mining. 

The method of mining however can be different and can be determined by two blockchain systems: proof-of-stake and proof-of-work. The key difference among the two is how the validation process is carried out. 

Validators in the proof-of-work system are people solving complex mathematical puzzles and are rewarded by predefined tokens once a group of validations are made. Whereas in proof-of-stake validators are people chosen based on their stake of token in the network and are not just problem solvers. In a proof-of-work system a lot of energy is consumed by the system, the biggest example being Bitcoin. In the case of proof-of-stake systems energy consumption is very less; example being cardano and EOSIO, even Ethereum is planning to migrate to this system. 

Determining the price of crypto

The price of cryptocurrencies varies from pennies on dollars to tens of thousands of dollars. What can be the reason for this? Why are some cryptocurrencies high on prices then others?

The price of the token that is sold to the public is determined on the basis of a number of factors. One being the mining cost, proof-of-work tokens must be sold at a price that is able to cover all the mining cost, another factor being demand and supply. Biggest example being Bitcoin, its prices rise every time there is halving. Whenever there is a new development there is a rise in demand for Bitcoin, leading to rise in prices.   

Disclaimer: The article should not be considered as any financial advice. It is advisable to conduct thorough research before investment.

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