Everything you need to know about what cryptocurrencies are, how they work, and how they’re valued. By now you’ve probably heard 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 mentioned how he or she is getting rich quick with virtual currencies like bitcoin, Ethereum, Ripple, or one of the lesser-known 1,300-plus investable cryptocurrencies.
But exactly how much do you learn about them? Considering exactly how many questions I’ve received out of the blue from your aforementioned group of people over the past month, the answer is probably, “not just a lot.”
Today, we’ll change that. We’re likely to walk with 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 get started. What exactly 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 inside your hand, or pull one 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 through the rapidly rising prices of virtual currencies in the last couples of months.
How many cryptocurrencies are available? The amount is usually changing, but according to CoinMarketCap.com as of Dec. 30, there was around 1,375 different virtual coins that investors may potentially buy. It’s worth noting the barrier to entry is extremely low among cryptocurrencies. In other words, because of this in case you have time, money, and a team of individuals that understands how to write computer code, you possess an opportunity to develop your personal cryptocurrency. It likely means new cryptocurrencies will continue entering the space over the years.
Why were cryptocurrencies invented?
Technically, the concept of a digital peer-to-peer currency was being tinkered with decades ago, nevertheless it wasn’t truly successful until 2008, when bitcoin was conceived. The basis of bitcoin’s creation, and all virtual currencies that have since followed, was to fix a number of perceived flaws using the way money is transmitted from a single party to another one.
What flaws? For example, think about how much time it may take to get a bank to settle a cross-border payment, or how banking institutions happen to be reaping the rewards of fees by acting as a third-party middleman during transactions. Cryptocurrencies work around the traditional financial system with the use of blockchain technology.
OK, what the heck is blockchain?
Blockchain is definitely the digital ledger where all transactions involving a virtual currency are stored. If you pick bitcoin, sell bitcoin, make use of your bitcoin to purchase a Subway sandwich, and so on, it’ll be recorded, within an encrypted fashion, within this digital ledger. The same goes for other cryptocurrencies.
Think of blockchain technology because the infrastructure that underlies virtual coins. It’s the building blocks of your house, as the tethered virtual coin represents all of the products built additionally foundation.
Why is blockchain a potentially better option compared to the current system of transferring money?
Blockchain offers numerous potential advantages, but was created to cure three major difficulties with the existing 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 out of this digital ledger is stored on hard disk drives and servers all around the globe. The main reason this is done is twofold: 1.) it helps to ensure that no person 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 of a cryptocurrency and exploit its holders.
Secondly, as noted, there’s no middleman with blockchain technology. Since fmlxdu third-party bank is required to oversee these transactions, the idea is the fact transaction fees could be below they currently are.
Finally, transactions on blockchain networks may have the opportunity to settle considerably faster than traditional networks. Let’s keep in mind that banks have pretty rigid working hours, and they’re closed a minumum of one or two days per week. And, as noted, cross-border transactions can be held for days while funds are verified. With blockchain, this verification of transactions is definitely ongoing, which suggests the opportunity to settle transactions much more quickly, or maybe even instantly.