| To understand digital currency you should know what a currency is? We've all heard of Dollars, Pounds, Euro's, Yen. These are names of various currencies that countries produce. Currency is used to make trade easier. Its form is paper bills and coins. If I farm a 100 lbs. of corn and I want to trade it for a coat, shoes, and meat. I can trade with people or sell it for currency and then use the currency to buy the products or services. The name for currencies has been also called fiat currency, which means the paper and metal isn't backed by anything but trust. Most currencies are backed by the taxing power of the government which means they can coerce you to pay using their currency by threatening to put you in jail if you don't pay your taxes or even kill you if you resist. Governments also have the ability to print as much currency as they want but this can cause inflation and undermine their currency as people won't trust it. A digital currency aka cryptocurrency isn't generated by governments. Its generated by rules embedded in software code. Digital currency, like all currencies, are based on trust and supply and demand. Digital currency implies that the value is stored in digital format and uses some mechanism to prevent the creation of new coins outside of some prescribed method. For example, bitcoins are created by a process called mining. Computers try to solve a math problem which at the same time maintains the file of all valid trades and creation of the currency. |