All you need to know about what cryptocurrencies are, the way they work, and how they’re valued. By now you’ve probably heard of the cryptocurrency craze. Either a member of family, 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 actually find out about them? Considering exactly how many questions I’ve received out from the blue from the aforementioned population group over the past month, the reply is probably, “not 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 samples of how today’s cryptocurrencies work, what they’re ultimately seeking to accomplish, and exactly how they’re being valued.
Let’s begin. What exactly are cryptocurrencies?
Simply put, 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 away from your wallet. But 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 there? The quantity is definitely changing, but according to CoinMarketCap.com at the time of Dec. 30, there was around 1,375 different virtual coins that investors could potentially buy. It’s worth noting that the barrier to entry is extremely low among cryptocurrencies. In other words, this means that in case you have time, money, and a team of people that understands creating computer code, you possess an chance to develop your personal cryptocurrency. It likely means new cryptocurrencies will continue entering the space as time passes.
Why were cryptocurrencies invented?
Technically, the concept of an electronic peer-to-peer currency was being tinkered with decades ago, but it wasn’t truly successful until 2008, when bitcoin was conceived. The foundation of bitcoin’s creation, and all virtual currencies who have since followed, ended up being to fix several perceived flaws with all the way cash is transmitted from a single party to a different.
What flaws? For example, take into consideration how long it may take to get a bank to settle a cross-border payment, or how financial 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 by using 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 purchase bitcoin, sell bitcoin, make use of bitcoin to purchase a Subway sandwich, etc, it’ll be recorded, in an encrypted fashion, within this digital ledger. The same goes for other cryptocurrencies.
Consider blockchain technology because the infrastructure that underlies virtual coins. It’s the cornerstone of your property, as 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 was created to cure three major difficulties with the current money transmittance system.
First, blockchain technology is decentralized. In simple terms, this means there isn’t a data center where all transaction details are stored. Instead, data from this digital ledger is stored on hard disk drives and servers throughout the globe. The main reason this is accomplished is twofold: 1.) it ensures that no one person or company could have central authority more than a virtual currency, and 2.) it works as a safeguard against cyberattacks, in a way that criminals aren’t able to gain charge of 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 thought is that transaction fees could be below 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 at least one or two days a week. And, as noted, cross-border transactions could be held for several days while funds are verified. With blockchain, this verification of transactions is always ongoing, meaning the opportunity to settle transactions much more quickly, or perhaps even instantly.