Cryptocurrency is a form of a new generation of currency that is unregulated and is not backed by any major financial institution. Because of the lack of regulation or existence of any tangible asset backing their presence, cryptocurrencies are highly volatile and even the slightest of changes in the market can lead to extreme fluctuations in the price of these cryptocurrencies.
To be able to understand the concept of cryptocurrency, we should first understand the history of how the concept of currency came
History of Money/Currency
In the era before the currency system was introduced, Barter system was used, i.e., items were exchanged directly. For example, if a person needs to buy wheat and wants to sell his horse, he would have to find a wheat seller who was ready to exchange it for the horse. This created the problem of double coincidence of wants, i.e., you need to find someone who is selling the product that you want such that the person is ready to exchange it for the product that you are selling. To solve this problem, the concept of money was introduced to be used as a medium of exchange. This lets the person first exchange his product for some currency and then use the same currency to exchange it to get the product he or she wants.
At first, the currency was made using precious metals like gold or silver assuring the bearer that it will hold its value in the future. Then as the economies started rising and the amount of currency in a particular country started increasing, it became less and less feasible to use those precious metals as currency. This gave birth to the currency notes that we see these days which are produced using cheap materials like paper or plastic but contain a message by the government, a promise to give the bearer a certain amount of money reflected on the notes themselves. Since these notes are regulated by the government or the ruler of a country, the holder has confidence that it will not lose its value in the future and would retain the amount written on it.
Now let’s see where does cryptocurrency finds its way
The Introduction of Cryptocurrency
After the major economic crisis of 2008, where the major economies of the world lost huge values in their currency through rapid inflation, cryptocurrencies were created in a way for people to control their money themselves without any connection from the government, banks, or companies.
Various cryptocurrencies are created with various objectives at hand and try to have various different properties in order to be able to distinguish themselves from the others
Various cryptocurrencies with their benefits
It is the most famous type of cryptocurrency in the world and is also the most valued one with the current price being around Thirty-Five thousand US Dollars.
Functioning in the same way as a Bitcoin, it was created in order to improve on to the Bitcoin’s architecture for shorter transaction times, lower fees and more concentrated miners.
The main focus of stellar is on money transfers, and its network is designed to make them faster. Its goal is to assist developing economies who might not have a proper framework of traditional banks and investment opportunities. Stellar does not charge fees for users to use its framework and operates on tax-deductible donations
With the growing popularity of cryptocurrency in the world, the term mining has almost changed its usual meaning in the first place. Earlier when we heard the term mining the first thing that would come to our mind would be mining coal or iron ore, but these days the primary thought is mining cryptocurrencies.
So what is cryptocurrency mining, it is the process of storing all the transactions of that particular cryptocurrency taking place, verifying them and adding them to a blockchain ledger. As a reward for providing resources for keeping the records, the user is rewarded some units of the cryptocurrency as compensation.
In other words, it is the process of creating cryptocurrencies through the process of auditing and processing their transactions.
In the beginning of the cryptocurrency era, one could mine through a laptop in his house, and earn upto 50 bitcoins per transaction or block recorded. The rate of reward is halved after every 2,10,000 transactions. As of May 11, 2020, the rate of reward per block is 6.25 bitcoins.
With the growing popularity of cryptocurrencies, it is becoming far more demanding in terms of a computer’s raw computational power to be able to handle those blockchains as they need to be updated in synchronization with all the other blockchains present over the internet, making it impossible to mine cryptocurrencies (especially bitcoins) over usual household desktops and are demanding highly professional setups requiring high performing graphic cards. This has led to a new problem of shortage of graphics cards in the market as most of them are picked up by the miners not leaving enough for the consumers.
Mining Problem in China
Given the extreme power hunger of the process of mining and a cyclopean rise of miners in China, the Chinese government has started cracking down on the crypto miners as it has been announced that around 90 percent of crypto mining operations in China will be shut down. This came in effect after it was seen that in the Sichuan province of China, which is abundant with electrical resources through hydropower, most of the energy was being used for mining purposes, and also, the Chinese government sees cryptocurrencies as a threat, given the decentralised nature of them, they risk to disrupt the normal order of economy and may increase the cross border illegal transfer of funds. Due to this, the value of Bitcoin plummeted down by over 30 percent.
Crypto Status in India
Even though the government does not have an official statutory body governing the trade and mining of cryptocurrencies, exchanging and mining them is still legal. But it is speculated that in the future they may be deemed as illegal and the traders and miners could be fined heavily for indulging in such practices