Cryptocurrency Explained
There are a many ways one can describe cryptocurrency. However, in the easiest to understand words possible, cryptocurrency is a type of currency that uses digital files as money.
The files are created using the same methodology as cryptography (which means the science of hiding information). Perhaps the most attractive thing about crypto right now is the fact that they are secure and use “decentralized control.” This means that the currency (any of them) is not controlled by any one person or government.
Like it or not, understand it or not the Internet has become an integral part of all our lives, from the Desktop / Laptop PC, Tablets to Cell phones we are all connected to the Internet in some way shape or form and with this reigns in as well a new form of currency call cryptocurrency.
The reality of this is cryptocurrency is not anything new however it has become more main stream in the most recent years as with everything Internet related or the IOT of things this currency is now bubbling up to the surface of the Internet from which it came from the depths of the Dark Web, yes the Dark Web.
This lack of security, in part due to how new the Internet was, created nightmares about government tracking and surveillance. Goldschlag, Reed, and Syverson aimed to route Internet traffic anonymously through multiple servers and encrypt it along the way, calling their idea “onion routing”.
When Tor was released in 2002, it was purposely kept as a free and open software. This was so the software could be easily accessible to those who wanted it and so it could rely on a de-centralized network for maximum security.
As Tor gained popularity, its users started demanding that its creators address censorship by allowing those living under oppressive governments to publish their thoughts and access restricted websites freely.
The Release of Bitcoin in 2009
Before cryptocurrency was invented, illegal transactions on the dark web were hard to complete, seeing as customers could potentially be located thousands of miles away and neither party wanted to risk using credit cards or PayPal for transactions because they leave paper trails.
Cryptocurrency, a form of digital currency that facilitates transactions anonymously, was the answer to this persisting problem. Though different forms of cryptocurrency had been in development since the 1990’s, none stuck until 2009, when one called Bitcoin was released.
A man named Satoshi Nakamoto “mined” the first Bitcoin, effectively starting a revolution in illegal transactions online. Bitcoin solved the problem that previous versions of cryptocurrency couldn’t − it had a special accounting ledger in place that prevented users from copying money.
Now that
All this digital currency transactions where incorporated into the Silk Road network of operations effectively breathing life into the new possibilities for the future of Digital Currency now known as Cryptocurrency.
I can not forget how all this is possible and yes all tied to the Dark Web.
Mining Explained
Bitcoin mining is the process of verifying Bitcoin transactions and creating new Bitcoin. The people who mine Bitcoin are known as Bitcoin miners. Well, I say “people“, but really, they are computers that are operated by people.
These computers (which we call “nodes“) have to be very powerful, as Bitcoin mining uses a lot of computer power. They run software that connects them to the Bitcoin blockchain and solves mathematical problems.
When these mathematical problems are solved, new transactional data is verified and stored on the Bitcoin blockchain. So, the Bitcoin miners are verifying the transactions instead of banks and credit card companies. This means there is no third party to trust or rely on. Clever, right?
Why do these ‘miners’ make all this effort? Surely it’s very expensive? Well, that’s a good question. Put simply, they do it because they are rewarded with Bitcoin for the transaction being completed.
That’s right, Bitcoin miners or properly defined cryptocurrency miners are paid with new Bitcoin or other forms of cryptocurrency which they can exchange for other forms of currency cryptocurrency or other actual financial assets .
The nature and process of performing and completing these transaction can be very Expensive and uses a lot of Electricity not to mention wear and tear on hardware in the system.
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Cryptocurrency explained in a 5 minute video.
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Crypto Mining FAQs
Crypto mining is necessary to secure proof-of-work (PoW) crypto blockchains and process the massive amount of transactions on each network. Here are the answers to a few common questions about crypto mining:
Is Crypto Mining Legal?
Crypto mining is legal in most jurisdictions, but there are an increasing number of countries and locations banning crypto mining, specifically Bitcoin mining. China is the largest country to ban Bitcoin mining, but others have followed suit, including Egypt, Iraq, Nepal, and Morocco. These countries have an outright ban on cryptocurrencies, which includes mining.
Overall, cryptocurrency is outlawed in nine countries and implicitly illegal in 42 more, according to a Law Library of Congress study in November 2021.
What Are Mining Pools?
Mining pools are a network of connected miners that “pool together” their mining resources to provide enough processing power to earn crypto block rewards. These pools can be distributed across the internet, but are connected by software. The “work” of solving the hash for a particular crypto is split up between miners.
Rewards are typically split in proportion to the processing power contributed by each miner, and some mining pools may charge a fee to join.
How Is Crypto Mining Taxed?
Crypto mining is viewed as business income and is taxed at the ordinary business income rate. Some mining pools or programs may report your earnings to the IRS in the form of a 1099-NEC. The cost basis of the cryptocurrency is the value of the crypto on the day you receive it, and if you sell it, you will need to report a capital gain (or loss) to the IRS.
If you require more information or have any questions please Contact Me before making any decisions to get involved in Cryptocurrency purchase, investments or or mining cryptocurrency as the market and technologies are complicated and is a very volatile market with many pro’s and con’s.
Content On This Page Is Not Financial Advice!
The content on this page is for informational and educational purposes only and should not be construed as professional financial advice. Should you need such advice, consult a licensed financial or tax advisor.
