What is cryptocurrency?
Cryptocurrencies are currencies that are digital and are supported by blockchain technology. The technology relies on a network of computers to keep track of transactions rather than on a centralized authority like a bank. Cryptocurrencies do not have a physical form and exist only on the internet.
What is blockchain technology?
Blockchain technology involves a peer-to-peer network of computers that keeps track of transactions on an open ledger and validates and verifies those transactions. A bank also has a ledger, but in blockchain, the work of keeping track of transactions is distributed among a network of computers rather than being the purview of a centralized third party.
What is bitcoin?
Bitcoin is a type of cryptocurrency and is the first cryptocurrency ever. The inventor of bitcoin, an anonymous entity known as “Satoshi Nakamoto,” unleashed bitcoin in 2009. Since then, hundreds of other cryptocurrencies have been created. Ethereum and Litecoin are two well-known cryptocurrencies. All cryptocurrencies operate using the basic principles of blockchain technology but vary in the details and ways in which they verify and validate transactions.
What is cryptocurrency mining?
First off, cryptocurrency mining isn’t literal mining – the term is just a convenient metaphor for the process of validating transactions on the peer-to-peer network and being awarded new coins as a result.
Computers that mine for bitcoin, for example, do so by performing work on the bitcoin public ledger, and in return, they are awarded the digital currency.
The work involves performing complex calculations, which allows the computers to validate bitcoin transactions made by millions of users all over the world. Those transactions are recorded on the ledger and are visible to every entity on the network.
How do you access cryptocurrency?
Cryptocurrency is accessed using a digital “wallet” that you can connect to from your mobile device or computer. To send cryptocurrency to another user, you would scan or copy an address from the user’s wallet and fill in the amount you want to send. Your request would then get sent to the bitcoin network to be verified and validated.
Isn’t bitcoin just like printing endless amounts of Monopoly money?
Perhaps a better question to ask is, is bitcoin susceptible to inflation? We’ve all heard stories of countries printing too much cash and devaluing their currencies as a result. By contrast, bitcoin is intended to be a finite resource like gold, silver, and — of course — copper.
The creator of bitcoin set the currency up so that only 21 million bitcoins will ever be released. This means that bitcoins can’t be endlessly “minted,” so to speak.
Currently, 12.5 bitcoins are released every 10 minutes. That rate is designed to decrease over time. The last bitcoin is anticipated to be released in 2140.
Can I buy anything with cryptocurrency?
Yes. There are some businesses that accept cryptocurrency as payment, though there aren’t many in Montana. Recently, Lewis & Clark Brewing Company in Helena started accepting bitcoin. You can also exchange bitcoin for goods and services with an individual.
Can I buy into a cryptocurrency or exchange a traditional currency like the U.S. dollar for it?
You can buy cryptocurrency directly from individuals who own some of it. You can also convert traditional currency into cryptocurrency through services known as cryptocurrency exchanges. Coinbase is one of the most popular cryptocurrency exchanges in the United States.
What happens when the last bitcoin is released?
You won’t be able to mine it anymore, but you could potentially still be able to exchange bitcoin for other currencies, speculate on it, or pay for goods and services from businesses that accept the cryptocurrency.
How are cryptocurrencies worth anything?
In some ways, this is a larger question about the way we assign value to anything. What is a tulip worth? What about a painting by a particular artist?
Like traditional currencies, the value of cryptocurrencies fluctuates in the market. Bitcoin, for instance, has been particularly volatile. It reached an all-time high in December, when one bitcoin was worth over $19,000, according to Coinbase. Today, one bitcoin is worth $6,260, according to Google.
In March, The Montana Standard asked CryptoWatt co-chief technology officer Fred von Graf if part of the difficulty in understanding cryptocurrency is part of a larger question about value.
“I think there is that (question),” von Graf said. “You and I both believe that the dollar's worth this much, but what is actually backing it? I mean, sure, there’s the Fed and the U.S. government saying it’s worth it, but like any currency, what’s actually backing our understanding behind it?”