Have you ever heard of Bitcoin? Ethereum? Dogecoin? If so, those are all digital currencies, also known as cryptocurrencies. With recent headlines of some digital currencies being worth an absolute fortune and breaking all kinds of stock market records, more and more people are starting to take notice of what was once considered a ‘fad.’ What are these cryptocurrencies? How do they work? And why are some digital currencies worth so much money? Let’s delve into the wonderful (and sometimes confusing) world of digital currency.
What is cryptocurrency?
Digital currency, virtual currency, cryptocurrency… There are so many names for this fairly new technology, but what actually is it? Effectively, it is just like any other currency. You can earn it, buy things with it, even trade it, just like you could with dollars, pounds or euros. However, the currency only ever exists in the digital world. You can’t actually hold a bitcoin in your hand or take it to the local shop to exchange for bread and milk. It also has no intrinsic value, meaning you couldn’t trade it for gold (although you can buy and sell some digital currencies on the stock market, more on that later). It’s a digital asset if you like!
How to get digital currency
So, how would one go about actually getting any kind of digital currency? There are several ways, but we’re going to focus on ‘mining’ as that’s where most early adopters earned their first cryptocurrency. A miner uses their computer to find a ‘hash’ or mine a ‘block’ which can take minutes, hours, days, weeks or even months. Within each block, there will be a particular bitcoin (or other cryptocurrency) amount that will then be sent to the miner’s bitcoin wallet. As it has become harder to mine blocks, massive computer systems and servers are now needed to find even the smallest fraction of a cryptocurrency. The equipment required to mine cryptocurrency is now extremely advanced (and expensive), meaning that very few people do this from their laptops at home! Instead, giant server rooms have been set up, to mine bitcoin and other digital currencies.
The rising value of digital currency
Over the last few years, digital currencies like bitcoin have gone from being worth very little to thousands of dollars. As of today, one bitcoin is worth over $4500! Ethereum, a fairly up and coming cryptocurrency is currently worth over $300 and rising on an almost daily basis. But why is the value of digital currency rising so quickly? Many believe this is due to the scarcity of each cryptocurrency, as they have a cap at which no more of the currency will enter the market. Others believe it’s due to the complexity (and expense) of mining bitcoin and other digital currencies, which has become progressively more challenging over time. With cryptocurrencies rising in value exponentially, many people have taken to buying, selling and trading in bitcoin, ethereum, and the other up and coming digital currencies. It’s easier than mining, doesn’t require any expensive equipment, and is just like trading any other stock. Many believe that one bitcoin could break the $10,000 mark by 2020, meaning that it’s surely a good investment if you can afford it! However, as with any investment, it could drop in value too. As more countries’ governments consider new rules and regulations around cryptocurrency, there’s a chance that the price of a bitcoin could take a serious hit; especially if it were to be banned by a country.
Digital currencies can be a difficult thing to understand, with even experts struggling to explain it in Layman’s terms. However, there is a good chance cryptocurrencies like bitcoin will increase in popularity and value over the years, so perhaps it’s time to do your research. And prepare for a time when you’ll be online shopping in bitcoin!