How Cryptocurrency Works

I’m sure by now, everyone has heard of Bitcoin. It is a type of a worldwide payment system called a digital currency or Cryptocurrency. Cryptocurrencies are generated by “mining”. Not mining with a pickaxe project though, but with powerful computers. Bitcoin isn’t issued by the government like paper money, but instead spawned by a community of miners. These miners have their computers use a special software to solve challenging equations all day. When an equation is solved, Bitcoin is created.  Because mining Bitcoin takes a lot of power that ends up being very expensive, only large companies with supercomputers mine them. Most independent miners go for lesser-known cryptocurrencies. A starter computer will now cost around 1,200 dollars, and the costs rise even more when the electric bill comes in for having to run the computer 24/7. There is a network of miners who are responsible for generating new Bitcoin. A miner’s goal is to bookmark transactions and solve complicated equations in order to generate the cryptocurrency. Since there is no central bank, all transactions are put on the public ledger called a blockchain (a transaction is called a block). It can be said they are the accountants of the cryptocurrency world. Miners make money by getting a portion of the currency they mined.

The safest and most popular to trade cryptocurrency is a site called CoinBase. A transaction is made by two parties agreeing on a purchase and a miner confirming it on the blockchain.  The biggest difference is the lack of protection from theft. Over 150 million dollars of cryptocurrency was stolen via hacking in 2017. Since there is no insurance to protect such things from happening, the money just disappears and usually, the hacker is not found.  

The origin of Bitcoin is strange. In 2008, a paper was posted on an online discussion, written by a man named Satoshi Nakamoto (Bitcoin: A Peer-to-Peer Electronic Cash System – Nakamoto has never revealed his identity to this day. The seven-page paper was an outline of how the payment system would work. One year later, Bitcoin was available to buy and sell, starting at a price of under .0001 cents. It wasn’t until 2011 that a Bitcoin was finally worth a single dollar. Bitcoin reached its peak in November 2017, when a single Bitcoin was worth 17,600 dollars. The first time Bitcoin was used to make a purchase was in 2010 when someone paid 10000 Bitcoin for two pizzas. That means if that pizza seller held on to those Bitcoins, they’d be worth 76 million dollars today, and 176 million at the peak price. In 2011, the second and third cryptocurrencies were created, NameCoin and LiteCoin. This would only lead to more cryptocurrencies being made to rival Bitcoin, and increases in the total market size. Now, there are 1638 cryptocurrencies in the world. The market is very top heavy though because the top 20 currencies account for 89% of the total worth. If you want to join the already 34 million people buying and selling cryptocurrency, then you should know how cryptocurrency is made and how it is sold.  

Now that you know the basic details of cryptocurrency, I’m sure you will want to open up a CoinBase account and start buying immediately. Bitcoin has been in a steady decrease since its peak, so maybe it would be smarter to buy one of the newer, and on the rise cryptocurrencies. Just watch out for hackers and market crashes and hope for the best; because not many can predict the erratic drops that may happen.  

Nikolas Bailey, Staff Writer
Sophomore Nikolas Bailey is a staff writer for the 2017-2018 Colonel. At LHS he participates in soccer and baseball while also pursuing hobbies in graphic design and photography. When he’s not working, you’ll find him watching movies.  

2 thoughts on “How Cryptocurrency Works

  1. Ah, this is interesting. I’m a colonel and I’ve invested in a CryptoCurrency with my dad called Itherium. Banks are investing in these Crypto Currencies because of how secure they are, and it’s funny you mention CoinBase because thats the site I use. How CryptoCurrencies are nice and all and extremely secure and all they’re abused for money laundering and the market is basically controlled by Russian Oligarchs because of the money they all move around at once. But the only problem I have with this article is how narrow it is, theres much more to CryptoCurrencies such as bit mining and the requirements for mining.


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