How Are Cryptocurrencies Created?

Since 2010, cryptocurrency has been growing into a bigger and bigger part of society, inserting itself into our current financial systems in place. With more reliance on technology, people are becoming more accepting of this new form of financial transaction. Cryptocurrency is now an essential part of every investor’s portfolio. These digital assets are now predicted to be entirely accepted worldwide as payment options within the next ten to twenty years.

In 2008, a mysterious person named Satoshi Nakamoto published a paper titled ‘Bitcoin: A peer-to-peer Electronic Cash System’. Many would argue that this paper was the birth of the cryptocurrency phenomenon. The goal of Nakamoto was to create a financial system better suited for online transactions than the system banks had in place. At the time, the only option people had when transacting online was to pay through a credit or debit card of their particular bank. The introduction of a peer-to-peer system would eliminate the need for any third party approval of the transaction. This would make a direct transaction possible. This makes the whole process faster, more secure, and automatically provides a receipt.

Bitcoins inception was the beginning of cryptocurrency, and since then, there has been a considerable inflow of newer currencies. However, what makes Bitcoin different from all the newer altcoins coming out? The key factor in finding this difference is in understanding the creation of a cryptocurrency. Bitcoin and other cryptocurrencies are created through a process called crypto-mining. Theoretically, with the right technology, anyone can mine for cryptocurrencies.

The process of crypto-mining includes several teams of computers solving different mathematical problems, creating algorithms that create the different tokens. The solution for each problem essentially makes one token or coin. Growth in demand for a cryptocurrency ensures the necessity for the development of mining facilities. The Process of crypto-mining also entails a higher level of security for every coin or token. Because these mathematical problems are uniquely solved, thus each token or coin is unique, copying or doubling the currency and transaction is impossible. This does not just keep buyers and sellers secure, but the uniqueness of each token also helps the currency avoid inflation. The growth and drop of a specific cryptocurrency are always totally dependent on the number of investors.

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The difference between the different cryptocurrencies is how they mine their coins or tokens. Some altcoins opt not to have the same open-source code that Bitcoin does. This can mean that transactions can be done anonymously or may require more details. These differences change the level of security offered by each cryptocurrency. This also leaves people who are looking to invest in cryptocurrency open to scams. Some fake exchanges can deliver high growth rates without having the facilities to host the growth. The same can happen for wallets. These wallets are meant to store your cryptocurrency exchanges. They typically offer different exchange and interest rates and have extra fees. But it can be used to take personal information and hack into your important accounts. This is why it is important to be vigilant in researching the best and safest exchanges and currencies available.

With all the cryptocurrencies coming out today, understanding the process is more critical now than ever. Knowing how cryptocurrency is created is key in doing the research prior to investing. This will help you as an investor in avoiding scams or currencies that are less legitimate than others. Even the most experienced crypto-traders need to understand the basics of the creation process. Part of that understands that cryptocurrencies may follow some pattern, which does not change the higher volatility levels with crypto-trading. There will always be risks when it comes to investing in cryptocurrency. Like anything else, however, the roots of the process will help determine how large the growth can be.


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