Money or currency has always been a central part of the development of society. From shells to iron coins to silver and gold coins, we have always find a medium of exchange of value. Through time, people have always tried to increase the amount of possessed money. However, until now one of the characteristics of the current national paper currencies is that the value of each unit continually decreases. This inflationary effect, managed but not controlled by Central Banks will change because we can now digitize our currencies thanks to computer technology, and since it is software we can program in this “crypto” currencies the characteristics that we would like.
The most well-known example of this currency concept is the Bitcoin. It is simply the online version of money, or a digital asset. The name “cryptos” is derived from “cryptography,” which is the action to encrypt transactions.
While the security and ease of exchange make cryptocurrencies an ideal medium of monetary exchange for the future, they are still unsafe at this stage. Although a recent surge in the price of Bitcoins and simultaneous boasting of the same on social media generated a lot of interest, it could still be years before any cryptocurrency enters the mainstream.
Cryptocurrency mining is simply the process of generating new units of any cryptocurrency. This process needs powerful hardware and software and is made under the conditions specified by the crytocurrency being mined. Not all cryptos are minables. Bitcoin for example can be mined and the process implies that many miners (computer farms) around the world compete trying to find the solution to a hashing process (a mathematical problem) and the on to who finds the solution is rewarded with bitcoins or the currency being mined. This process does creates inflation but in many case as the Bitcoin there is a limit to how many Bitcoins will ever exist, 21 Million.
That does not happen in a national developed or developing economy with trillions of dollars in all banks around the country. In this case, whenever the central bank needs to push money into the system it simply prints it, there is no limit to that and this process creates inflation year after year.
In a future article we will explore what you can do to start mining cryptocurrencies.