How are cryptocurrencies created?
Mining is the term used to describe the process of creating cryptocurrency. Transactions made with cryptocurrency need to be validated, and mining performs the validation and creates new cryptocurrency. Mining uses specialized hardware and software to add transactions to the blockchain.
Not all cryptocurrency comes from mining. For example, crypto that you canât spend isn't mined. Instead, developers create the new currency through a hard fork. A hard fork creates a new chain in the blockchain. One fork follows the new path, and the other follows the old. Crypto you canât mine is typically used for investments rather than purchases.
Cryptocurrency vs. traditional currency
The government produces traditional currency in paper bills and coins you can carry with you or put in a bank. You can use it for purchases and other transactions that require cash. The government backs traditional currency, while cryptocurrency has no government, bank, or financial institution controls.
While you can hold traditional currency in a bank or financial institution, you store cryptocurrencies in a digital wallet. Banks insure money kept in bank accounts against loss, while crypto has no recourse in the event of a loss.
What are the advantages of cryptocurrency?
When it comes to cryptocurrency, there are some advantages to it versus traditional currency. An advantage of cryptocurrency is privacy. When you make a purchase with cryptocurrency, you donât need to provide any personal information. This protects you from potential identity theft and other fraudulent activities. And no matter what happens to the government, your investment is secure.
Another advantage of cryptocurrency is that itâs global, so thereâs no need to figure or pay foreign exchange rates, although cryptocurrency isnât legal in some countries. You also donât need to worry about bank account restrictions, such as ATM withdrawal limits.
