Cryptocurrency and What Are Its Sources

March 8, 2024

Cryptocurrency is a digital currency that uses cryptography to secure transactions and control the creation of new units. Sources of Cryptocurrency is not backed by any government or financial institution, and its value is determined by market demand and supply . Cryptocurrencies sources are decentralized, meaning they are not controlled by a central authority, such as a bank or government . The first and most well-known cryptocurrency is Bitcoin, which was created in 2009 by an unknown person or group using the pseudonym Satoshi Nakamoto . Since then, thousands of other cryptocurrencies have been created, including Ethereum, Ripple, and Litecoin .

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Sources of Cryptocurrency

The sources of cryptocurrency are the people who mine it. Mining is the process of verifying transactions on a blockchain network and adding them to the public ledger. Miners use powerful computers to solve complex mathematical problems that validate transactions and earn them new units of cryptocurrency as a reward. The more computing power a miner has, the more likely they are to solve the problem and earn the reward. Cryptocurrency mining requires a lot of energy and computing power, which can be expensive. As a result, many miners join mining pools to share resources and increase their chances of earning rewards .

The Invention of Cryptocurrency

Cryptocurrency was invented in 2008 by an unknown entity under the name Satoshi Nakamoto1. The currency began use in 2009, when its implementation was released as open-source software1. Most cryptocurrencies are ‘mined’ via a decentralized network of computers. Cryptocurrency is produced by an entire cryptocurrency system collectively, at a rate which is defined when the system is created and which is publicly stated3.

cryptocurrency Bitcoin — “Bitcoin cryptocurrency png sticker, transparent“/ CC0 1.0

The first cryptocurrency was Bitcoin, which was first released as open-source software in 2009 1. As of June 2023, there were more than 25,000 other cryptocurrencies in the marketplace, of which more than 40 had a market capitalization exceeding $1 billion 1.

Mining and Mining Pools of Cryptocurrency

Bitcoin mining is the process by which new bitcoins are entered into circulation. It is also the way the network confirms new transactions and is a critical component of the blockchain ledger’s maintenance and development 1.

The process of mining involves solving complex mathematical problems using sophisticated hardware 1. The first computer to solve the problem receives a reward in the form of newly minted bitcoins, and the process begins again 1. The probability that a participant will be the one to discover the solution is related to the portion of the network’s total mining power 1.

Mining

is a resource-intensive and difficult process that requires either a graphics processing unit (GPU) or an application-specific integrated circuit (ASIC) to set up a mining rig 12. The primary purpose of mining is to allow Bitcoin nodes to reach a secure, tamper-resistant consensus, and it also introduces new coins into the system in a decentralized manner 1. Miners are paid any transaction fees as well as a “subsidy” of newly created coins, which motivates people to provide security for the system 1. Bitcoin mining pools are groups of miners who combine their computing power to increase their chances of finding a block and earning rewards 1. When a block is found, the rewards are distributed among the pool members based on their contribution to the pool’s hash rate 1. The Bitcoin network hash rate is the total computational power of all miners participating in the Bitcoin network 1. As of October 5, 2023, the Bitcoin network hash rate was 404.6244 EH/s 1. The distribution of hash rate among mining pools is constantly changing, but as of February 14, 2022, the largest pool was Foundry USA, which had captured 20.16% of the global hash rate.

Mining pools

help miners to earn more consistent rewards by reducing the variance in their mining income 2. They also help to reduce the risk of mining becoming centralized, as smaller miners can still participate in the network and earn rewards 2.

There are many different mining pools available for Bitcoin, each with its own fee structure, payout threshold, and other features 1. Some of the most popular mining pools include BTC.com, Antpool, Slushpool, ViaBTC, and F2Pool 1.

Blockchains of Cryptocurrency

A blockchain is a distributed database or ledger shared among a computer network’s nodes ¹. It is best known for its crucial role in cryptocurrency systems for maintaining a secure and decentralized record of transactions, but it is not limited to cryptocurrency uses ¹. Blockchains can be used to make data in any industry immutable, which means that it cannot be altered ¹. Because there is no way to change a block, the only trust needed is at the point where a user or program enters data ¹. This aspect reduces the need for trusted third parties, which are usually auditors or other humans that add costs and make mistakes ¹.

A blockchain consists of programs called scripts that conduct the tasks you usually would in a database: Entering and accessing information and saving and storing it somewhere ¹. A blockchain is distributed, which means multiple copies are saved on many machines, and they must all match for it to be valid ¹. The blockchain collects transaction information and enters it into a block, like a cell in a spreadsheet containing information. Once it is full, the information is run through an encryption algorithm, which creates a hexadecimal number called the hash. The hash is then entered into the following block header and encrypted with the other information in the block. This creates a series of blocks that are chained together ¹.

Since Bitcoin’s introduction in 2009, blockchain uses have exploded via the creation of various cryptocurrencies, decentralized finance (DeFi) applications, non-fungible tokens (NFTs), and smart contracts ¹.

Cryptocurrency Cloud Mining Service

A mining pool is a group of miners who combine their computing power to increase their chances of finding a block and earning rewards 1. When a block is found, the rewards are distributed among the pool members based on their contribution to the pool’s hash rate 1. Mining pools help miners to earn more consistent rewards by reducing the variance in their mining income 2. They also help to reduce the risk of mining becoming centralized, as smaller miners can still participate in the network and earn rewards 2.

On the other hand, cloud mining is a mechanism to mine a cryptocurrency, such as Bitcoin, using rented cloud computing power and without installing all the hardware and other necessary equipment 3. Cloud mining providers enable people to create accounts with them and go ahead to take part in the practice of mining for a simple cost 1. The practice enables the process to be globally accessible by massive participants 1. Cloud miners become participants in a mining pool, where users purchase a certain amount of “hash power” 3. Each participant earns a pro-rata share of the profits in proportion to the amount of hashing power rented 3.

In summary, while both mining pools and cloud mining services allow miners to earn rewards without having to invest in expensive hardware, they differ in how they operate. Mining pools are groups of miners who combine their computing power to increase their chances of finding a block and earning rewards. Cloud mining services, on the other hand, allow users to rent hash power from cloud providers and participate in mining pools.

Energy Consumed in Mining Cryptocurrency

The energy consumption of cryptocurrency mining has been a topic of concern in recent years. According to a report by Cambridge researchers, the Bitcoin network alone consumes around 121.36 terawatt-hours (TWh) of electricity per year ¹. This is more than the annual energy consumption of Argentina ¹. The energy consumption of Bitcoin mining is unlikely to fall unless the value of the currency slumps ¹.

The energy consumption of cryptocurrency mining is due to the high computational power required to solve complex mathematical problems and verify transactions ². The process of mining involves solving complex mathematical problems using sophisticated hardware ³. The first computer to solve the problem receives a reward in the form of newly minted bitcoins, and the process begins again ³. The probability that a participant will be the one to discover the solution is related to the portion of the network’s total mining power ³.

Mining is a resource-intensive and difficult process that requires either a graphics processing unit (GPU) or an application-specific integrated circuit (ASIC) to set up a mining rig ³⁴. The primary purpose of mining is to allow Bitcoin nodes to reach a secure, tamper-resistant consensus, and it also introduces new coins into the system in a decentralized manner ³. Miners are paid any transaction fees as well as a “subsidy” of newly created coins, which motivates people to provide security for the system ³.

Other Alternatives Cryptocurrency to Bitcoin

There are many other cryptocurrencies available besides Bitcoin. Some of the most popular ones include:

Ethereum (ETH): A decentralized software platform that enables smart contracts and decentralized applications (dApps) to be built ¹.
Litecoin (LTC): A peer-to-peer cryptocurrency that is based on the Bitcoin protocol but with some key differences, such as a faster block generation time and a different hashing algorithm ².
Ripple (XRP): A digital currency that is designed to enable fast and secure global payments ¹.
Bitcoin Cash (BCH): A cryptocurrency that was created in 2017 as a result of a hard fork from the original Bitcoin blockchain ³.
Monero (XMR): A privacy-focused cryptocurrency that uses ring signatures and stealth addresses to obscure the identity of senders and recipients ¹.
Zcash (ZEC): A privacy-focused cryptocurrency that uses zero-knowledge proofs to enable fully anonymous transactions ¹.
Dash (DASH): A cryptocurrency that is designed to be fast, secure, and private, with features such as instant transactions and a two-tier network ¹.

These are just a few examples of the many cryptocurrencies available in the marketplace today. Each cryptocurrency has its own unique features, advantages, and disadvantages, so it’s important to do your research before investing in any particular one.

Investing in Cryptocurrency

There are many ways to learn about investing in cryptocurrency. Here are some suggestions:

Read up on the basics: Before investing in cryptocurrency, it’s important to understand the basics of how it works. You can start by reading articles and guides on reputable websites such as NerdWallet ¹.
Take a course: There are many online courses available that can teach you the ins and outs of investing in cryptocurrency. Some of the best courses include The Complete Cryptocurrency Investment Course, Cryptocurrency Fundamentals, and Algorithmic Cryptocurrency Trading ².
Join a community: Joining a community of like-minded individuals who are interested in cryptocurrency can be a great way to learn more about it. You can find communities on social media platforms such as Reddit, Twitter, and Facebook.
Practice with small amounts: Before investing large sums of money in cryptocurrency, it’s a good idea to practice with small amounts first. This will help you get a feel for how the market works and reduce your risk of losing money.
Stay up-to-date: The cryptocurrency market is constantly changing, so it’s important to stay up-to-date with the latest news and trends. You can do this by following reputable news sources such as CoinDesk and Cointelegraph.

More Resources about Cryptocurrency

more blogs about Cryptocurrency can be found here

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Written by

mfahmy

I’m 47 years old from Egypt and have 3 boys. After getting my computers and statistics degree and having lot of experiences, I offer 10+ years of development experience, a strong aptitude for learning new technologies, and a proven track record of meeting aggressive goals. I started this blog in January 2025, moved all tech titles to it and kept general daily prompts on the older blog. I started writing old blog with Chat and some titles in mid 2023. I hope you can find some useful information around here. You can find the link to the old sister blog in the footer.