Cryptocurrency 101: A Guide to Digital Dollars – The Bentley University Newsroom
That’s incredible, especially considering there are only 180 traditional currencies in circulation. But if cryptocurrencies aren’t regulated by governments, how do they acquire value?
With Bitcoin, new digital assets are created through a process called “mining.” Each time a new block is added to the existing chain, the computer that provides “proof of work” — that is, the first member of the network to solve a series of complex mathematical puzzles — is rewarded with new bitcoins.
As more users join the network, the puzzles become increasingly harder to solve, and additional computing power is required to provide “proof of work.” In the early days, mining could be done quickly and easily on home computers. Today, however, successful miners employ giant data centers, or “farms” — which consume exorbitant amounts of energy. (According to current estimates, it takes about $8,000 worth of electricity to mine a single Bitcoin.) Most Bitcoin users end up acquiring digital assets using fiat money, or government-issued currency, instead of mining their own.
Since Bitcoin has a finite amount of assets — Satoshi Nakamoto set a cap of 21 million units, about 18.5 million of which have been mined thus far — its value is determined by traditional principles of supply and demand. Right now, a single unit of Bitcoin is worth about $48,000. But it’s proven to be a highly volatile market, so financial experts are divided about the future of Bitcoin.