Digital money: How do cryptocurrencies work?

Only a year later, an unknown person or group of people under the pseudonym Satoshi Nakamato lays the foundation for this: the document about the idea of a digital currency suddenly pops up on the internet – it explains a payment system that works from person to person, without a bank is interposed (peer-to-peer). The name of the first digital currency: Bitcoin.

But how do you get digital coins? Theoretically there is the possibility, e.g. to generate Bitcoins by yourself. This requires a computer that solves highly complex mathematical equations. The problem: The computer would now have to provide an extremely high and energy-intensive computing power, so that it would be no longer economical for currencies such as Bitcoin to create the coins this way.

A more effective way to mine coins are the so-called mining pools which are offered by specialized service providers. Here, several participants can unite by summarizing computing power. These are made available to the service provider, who then generates the common cryptocurrency. The profit will be shared later among the pool participants.

In addition to “digging” you can buy digital currencies on special stock exchanges. For this you need ‘real’ money such as euros or US dollars, often called fiat money among crypto experts. As well you have to sign up here – but with your real name. This serves to combat money laundering. Though anonymity is no longer guaranteed, but it’s the only way to transfer real money from a bank account to an exchange. Once you have made a purchase, the digital money can be transferred to the wallet. Best known exchanges are Kraken, Anycoindirekt, Poloniex or Bitcoin.de.

 Even if Bitcoin is currently the best-known internet currency, strong price gains attracted more and more investors for new payment systems. Today there are 1,629 cryptocurrencies (stand of: 06/15/2018, source: coinmarketcap.com). The most well-known alternatives beside Bitcoin are Ethereum, Ripple and Litecoin – a small overview:

1. Ethereum: