CRYPTO CURRENCY

There are two ways of getting Bitcoin. You can either buy one at the current price(today’s price is $50,000 for one Bitcoin) or you can ‘mine’ it. The analogy is like mining for Gold. However, with digital currencies it is slightly different, as you don’t have to go down a mine to do so. With cryptocurrencies, you have to do it through something called, ‘Proof of Work’. Proof of Work refers to the fact that if you want a Bitcoin, you have to literally prove that you have done work and in return you get paid in Bitcoin tokens. In cryptocurrencies this is done by creating a scenario where if you want to get paid in Bitcoins, you have to do something which is not easy to do i.e. you have to commit your computers to solving puzzles or mathematical functions. If the computer solves the puzzle then it proves that you have dedicated power, time, effort, heat and computation to solve the problem. The more you do this the more of a ‘vote’ you are allowed to have. This vote is embodied in a Bitcoin token. You receive a token of Bitcoin(a fraction of a Bitcoin) in return for mining it. Only miners are able to confirm a transaction. This is their role in the cryptocurrency network. They record transactions, verify them and disperse the transactional information in the network. For every completed transaction monitored and facilitated by the miners, they are rewarded with a token of cryptocurrency, for instance with Bitcoins. What this does is introduce scarcity into the system. Scarcity is important because the only way anything has any value is because it is scarce. If Gold, like pebbles, were to be found everywhere, it wouldn’t have any value. But Bitcoins are not easy to mine – it takes computational power and time to do it AND there are a maximum of 21 million that can ever be mined. This creates instant scarcity.