Everything you need to find out about what cryptocurrencies are, the way they work, and exactly how they’re valued. At this point you’ve probably learned about the cryptocurrency craze. Either a family member, friend, neighbor, doctor, Uber driver, sales associate, server, barista, or passer-by on the street, has probably told you how they are getting rich quick with virtual currencies like bitcoin, Ethereum, Ripple, or one of the lesser-known 1,300-plus investable cryptocurrencies.
But how much do you really find out about them? Considering exactly how many questions I’ve received out from the blue through the aforementioned population group during the last month, the answer is probably, “not just a lot.”
Today, we’ll change that. We’re planning to walk through the basics of cryptocurrencies, step by step, and explain things in plain English. No crazy technical jargon here. Just sticks and stones types of how today’s cryptocurrencies work, what they’re ultimately trying to accomplish, and how they’re being valued.
Let’s get going. What exactly are cryptocurrencies?
To put it simply, cryptocurrencies are electronic peer-to-peer currencies. They don’t physically exist. You can’t pick up a bitcoin and hold it in your hand, or pull one away from your wallet. But just simply because you can’t physically hold a bitcoin, it doesn’t mean they aren’t worth anything, as you’ve probably noticed by the rapidly rising prices of virtual currencies within the last couples of months.
How many cryptocurrencies are available? The number is definitely changing, but based on CoinMarketCap.com at the time of Dec. 30, there have been around 1,375 different virtual coins that investors could potentially buy. It’s worth noting that the barrier to entry is particularly low among cryptocurrencies. In other words, this means that for those who have time, money, along with a team of men and women that understands creating computer code, you possess an opportunity to develop your very own cryptocurrency. It likely means new cryptocurrencies continue entering the space after some time.
Why were cryptocurrencies invented?
Technically, the idea of a digital peer-to-peer currency was being tinkered with decades ago, however it wasn’t truly successful until 2008, when bitcoin was conceived. The foundation of bitcoin’s creation, and all of virtual currencies who have since followed, was to fix several perceived flaws with all the way cash is transmitted from one party to another.
What flaws? As an example, take into consideration just how long it can take to get a bank to settle a cross-border payment, or how finance institutions have already been reaping the rewards of fees by acting as a third-party middleman during transactions. Cryptocurrencies work across the traditional financial system through the use of blockchain technology.
OK, exactly what the heck is blockchain?
Blockchain will be the digital ledger where all transactions involving an online currency are stored. If you buy bitcoin, sell bitcoin, make use of bitcoin to purchase a Subway sandwich, etc, it’ll be recorded, in an encrypted fashion, in this particular digital ledger. The same goes for other cryptocurrencies.
Think about blockchain technology because the infrastructure that underlies virtual coins. It’s the building blocks of your property, while the tethered virtual coin represents each of the products built in addition to that foundation.
Exactly why is blockchain a potentially better choice compared to the current system of transferring money?
Blockchain offers numerous potential advantages, but was created to cure three major issues with the present money transmittance system.
First, blockchain technology is decentralized. In simple terms, this just means there isn’t a data center where all transaction data is stored. Instead, data out of this digital ledger is stored on hard disks and servers all over the globe. The reason this is accomplished is twofold: 1.) it helps to ensure that no one person or company will have central authority more than a virtual currency, and 2.) it behaves as a safeguard against cyberattacks, to ensure that criminals aren’t able to gain control over a cryptocurrency and exploit its holders.
Secondly, as noted, there’s no middleman with blockchain technology. Since fmlxdu third-party bank is necessary to oversee these transactions, the idea is the fact transaction fees may be less than they currently are.
Finally, transactions on blockchain networks may have the opportunity to settle considerably faster than traditional networks. Let’s remember that banks have pretty rigid working hours, and they’re closed one or more or two days a week. And, as noted, cross-border transactions can be held for several days while funds are verified. With blockchain, this verification of transactions is always ongoing, which means the ability to settle transactions a lot more quickly, or maybe even instantly.