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A cryptocurrency is a digital currency based on encryption. Frequently called a virtual currency, it doesn’t have a physical form, but would only exist on computers. Its transaction history is recorded on many computers to avoid fraud.
Every transaction of a cryptocurrency is recorded in a long string of blocks that are available for the world to see. These blocks are linked together in a chain, called a blockchain. By viewing through its open ledger of every transaction, anyone can verify past transactions. Unlike underwriting processes used in banks, no one is paid to verify the transactions, but cryptocurrency handlers use their computing devices to record all blockchains in exchange for newly minted digital coins. The cryptocurrency handlers, called miners, are motivated to mine blockchains to earn more new coins.
New digital coins are issued on a periodic basis, and earning newly issued coins is a competition. Only the first person successfully verifying the blockchains with newly issued coins can earn the new coins. That means, using faster computers will ease the mining process, and the users of faster machines will have a higher chance to win.
Cryptocurrencies are not regulated by governments. Believe it or not, no governments will tolerate this phenomenon. For instance, if Bitcoin became the major currency in the United States, the US dollar would become a junk. Then, all the dollar denominated products would become super expensive, causing chaotic inflation. For example, a gallon of gas costing $5 now would become $10,000. From the above explanations, cryptocurrencies themselves may eventually turn to be worthless or disappear, or they may merely become an alternative to casino tokens.
Nevertheless, the technology underpinning the mining of blockchains will be booming. First, the mining process offers a new paradigm for data security. Second, the computing software and hardware developed for mining cryptocurrencies can be extended to other applications. Many high tech companies have been benefited from the cryptocurrency mining. For example, Taiwan Semiconductor Manufacturing Co. (TSMC) is the largest semiconductor manufacturer, whose growing revenue over the past decade was largely due to supplying components for Apple Inc.’s iPhone. However, in the last quarter, TSMC’s sale growth was driven by cryptocurrency mining companies.
It looks like the crypto-mania will not persist. The profitable ripples induced by the blockchain technology are not on trading cryptocurrencies, but investing in high tech companies.