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A cryptocurrency is a digital form of money; a monetary system that does not require banks or financial institutions to control or monopolize upon it, and in fact is not backed up by any real solid backing. It is an entirely trust-based system in which there are many different formats with varied functions, and even proposed and practiced uses throughout many societies all over the world.
Creating a digital currency requires the solving of complex mathematical calculations by miners. As the number of miners increases, so does the difficulty of the calculations. Originally these functions were carried out using pure computer processing power, but as the difficulty grew, graphics processors were utilized (these process data at a faster rate than computer processors). Again as the mining difficulty rate grew, special machines were developed called Application Specific Integrated Circuits (ASICs), which were designed just for one task: mining digital currencies at an expedited rate. As the difficulty level continues to increases, miners must have more and more processing power to get the same amount of returns. The rate of difficulty level increase depends on the specific design of various coins.. This ever growing difficulty rate is part of the overall coin control process that limits the supply and also inflation.
Historically to create digital coins requires more and more processing power and thus the whole exercise becomes an arms race of sorts.
History of digital currencies
The first decentralized digital currency was called Bitcoin, it was created in 2009 by [Satoshi Nakamoto] (There are many theories as to whether this person actually exists or even is a group of people). Still to this day it t uses SHA-256 as it's mining algorithm - a complex cryptographic hash function, it is a proof-of-work scheme. In April 2011, Namecoin was created as an attempt at forming a decentralized DNS, which would make internet censorship very difficult. In October 2011 Litecoin was released - it was the first successful digital currency to use scrypt as its hashing function instead of the most commonly used SHA-256. Another digital currency called Peercoin was the first currency to use a proof-of-work/proof-of-stake hybrid.
From the first stages of crypto / digital currencies there are many different coins and functions as above but they mainly have one thing in common and that is that they can all be traded on the different Exchanges_&_Markets normally as part of a so called trading pair with the most commonest other traded coin being Bitcoin. Much like the stock and shares markets people bid on the futures on the coins taking advantage of the low buying points and selling at the highs values to make a profit.
Ionomy is a proof of stake coin with a fixed reward / stake rate. It is based off of darkcoin with custom masternodes.