Cryptocurrency is all the rage these days. From Bitcoin to Dogecoin, making money has never been easier. This mysterious invisible currency has business majors glued to Coinbase 24/7. The real question is, where does it get its value, and what is all the hype?
Personally, I have yet to fall into the crypto craze, simply because I do not understand a single thing about it. You hear about it in the news and read about it online, but no one has given a simple breakdown of the process. I took it upon myself to answer the world’s most basic questions about crypto. Though finance majors might see these as highly oversimplified, I am doing my best.
Let’s take it from the beginning…
The first official cryptocurrency on the market was Bitcoin, which gained popularity in 2009. It has a set value of $21 million, which means that once all of the coin is “mined”, an official term for acquiring crypto tokens, there will no longer be any in existence. This was done to ensure an easy balance of supply and demand and increase their market share. After Bitcoin, virtual currencies took off rapidly, resulting in over 6,000 currencies today.
What and why are they mining?
To make things even more complicated, acquiring any type of cryptocurrency is a convoluted process. Essentially, these cryptocurrencies store in massive databases with endless amounts of code that “miners” have to unlock. These systems are referred to as Blockchains and they have no official owner. A miner will take between 10 minutes and a couple of years to solve these equations. They are then given access to their coin which they can sell shares of or they can keep the coin to track its value.
So they’re stocks?
They work similar to stocks, in that they are bought and sold in a marketplace, but unlike stocks, they are in very limited supply. Many coins, like Bitcoin, set an amount of coin that can be mined to prevent over-saturation. Additionally, crypto is a lot less reliable than buying stocks. They rise and fall more frequently and depend more heavily on demand from the miners.
How are they worth anything?
Just like our own currency, crypto is backed by absolutely nothing. This means that their value is solely established through supply and demand. The more people interested in mining coins, the more valuable it will be and vice versa. This is the most frustrating thing about cryptocurrency because anyone could design a coin and establish its value with no justification. Regardless, the number of people interested in adding crypto to their portfolios increases daily.
Although cryptos are all the rage currently, I don’t see myself getting too invested in the ordeal. It is an interesting concept, but I think I will stick with old-fashioned stocks for now. But who knows, I may just become the next crypto whale.