Everything you need to know about what cryptocurrencies are, how they work, and how they’re valued. By now you’ve probably heard of the cryptocurrency craze. Either a relative, 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 just how much do you find out about them? Considering just how many questions I’ve received from the blue through the aforementioned group over the last month, the reply is probably, “not a lot.”
Today, we’ll change that. We’re planning to walk from the basics of cryptocurrencies, step-by-step, and explain things in plain English. No crazy technical jargon here. Just sticks and stones examples of how today’s cryptocurrencies work, what they’re ultimately attempting to accomplish, and exactly how they’re being valued.
Let’s begin. Exactly what are cryptocurrencies?
In other words, 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 since you can’t physically hold a bitcoin, it doesn’t mean they aren’t worth anything, as you’ve probably noticed through the rapidly rising prices of virtual currencies in the last couples of months.
The number of cryptocurrencies are available? The number is definitely changing, but in accordance with CoinMarketCap.com since Dec. 30, there have been around 1,375 different virtual coins that investors may potentially buy. It’s worth noting that the barrier to entry is particularly low among cryptocurrencies. Quite simply, because of this if you have time, money, along with a team of men and women that understands how to write computer code, you have an opportunity to develop your own cryptocurrency. It likely means new cryptocurrencies continue entering the room as time passes.
Why were cryptocurrencies invented?
Technically, the thought of a digital peer-to-peer currency was being tinkered with decades ago, but it wasn’t truly successful until 2008, when bitcoin was conceived. The basis of bitcoin’s creation, and all of virtual currencies which have since followed, ended up being to fix several perceived flaws with all the way funds are transmitted in one party to another one.
What flaws? For instance, think about just how long it can take to get a bank to settle a cross-border payment, or how banking institutions have been reaping the rewards of fees by acting being a third-party middleman during transactions. Cryptocurrencies work around the traditional financial system through the use of blockchain technology.
OK, just what the heck is blockchain?
Blockchain is the digital ledger where all transactions involving a virtual currency are stored. If you buy bitcoin, sell bitcoin, make use of your bitcoin to purchase a Subway sandwich, etc, it’ll be recorded, in an encrypted fashion, in this particular digital ledger. The same thing goes for other cryptocurrencies.
Think of blockchain technology since the infrastructure that underlies virtual coins. It’s the building blocks of your property, while the tethered virtual coin represents all the products built in addition to that foundation.
Why is blockchain a potentially better option than the current system of transferring money?
Blockchain offers numerous potential advantages, but is made to cure three major issues with the present money transmittance system.
First, blockchain technology is decentralized. In simple terms, this means there isn’t a data center where all transaction information is stored. Instead, data from this digital ledger is stored on hard disks and servers throughout the globe. The reason this is accomplished is twofold: 1.) it helps to ensure that nobody person or company will have central authority more than a virtual currency, and two.) 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 needed to oversee these transactions, the thought is the fact that transaction fees could be lower than they currently are.
Finally, transactions on blockchain networks may get the chance to settle considerably faster than traditional networks. Let’s understand that banks have pretty rigid working hours, and they’re closed one or more or two days every week. And, as noted, cross-border transactions may be held for many days while funds are verified. With blockchain, this verification of transactions is definitely ongoing, meaning the chance to settle transactions far more quickly, or perhaps even instantly.