Cryptocurrency is a famous topic in modern world. Cryptocurrency is a money unit but we cannot see them physically. They are a digital money. Mostly cryptocurrency are stored in a block chain. Cryptocurrency cannot be hack by anyone. For that some methods are used. Cryptography is one mechanism of them. That’s why this digital currency are called as cryptocurrency.
Let see how this work, how come value for the cryptocurrency using an example.
Think you are a software developer and you have two friends. One of them is a graph man (who making plans) and other one is a seller. You ask them that you have a cryptocurrency known as wizard, you and your friends can use that cryptocurrency when you exchange your services and goods. Then you buy some goods from your friend who is a seller and pay by wizard coins. Then your friend who is a seller want to make website and he come to you forget your service. After he fulfill him need, he also pay by using wizard coins to you. Then you want to make a plan and you get the service from your friend who are a graph man and you pay with wizard coin. That way it starts with a small amount. That is the way the cryptocurrency are growing. Thus its value increases. Value of this currency change by amount of the coins and demands of the coins.
There is not central authority for control the cryptocurrency. So value of the cryptocurrency control by demand and the supply of the people which using this network. So there is a connection between bank and government with the cryptocurrency. In here we trust inly this network.
Then I think you have some problems like where is the network? Is there a computing power to run, host and verify the transactions of cryptocurrency? In here cryptocurrency mining take a part. There are peoples who are calling minors. We can also be a minor. They download the distributed ledger and verify the records of transactions. Algorithms are used in this verification. High processing power need to run these algorithms. Minors process this activity and verify the transactions. In here there is a competition between minors. Because a reward can be get by the minor who doing this process first. From that they can take a profit.
That reward is a free cryptocurrency from the network. That’s why we call it as mining. When considering the network like bitcoin, the maximum coin should be exist in the network is 21 million.
Can that money run out?
Yes. It can be. 17 million bitcoins were issued as of 2018. That means minors mined the 17 million of bitcoins. So the reward also decrease with the time. But when we consider another cryptocurrency the mechanism and the process can be different.
However high electricity and good processing power need to the mining of cryptocurrency. It cannot be processing with normal computer. As of 2019, there were cryptocurrency over 1600. But transactions of some cryptocurrencies can validate without processing power.